An Analysis of Strengthening Corporate Social Responsibility for Corporate Governance

INTRODUCTION

Global warming, diminuendo natural resources,the extinction of various plants and animals species ,global population increase and migration are some of the environmental and social issues we face today .To address  these issues while ensuring economic development ,technological progress, food,education and health for all ,a more sustainable development approach becomes necessary .This requires commitment of all- the international organizations,governments ,associations,companies and citizens.The overall goal is to combine economic progress, social justice and environment preservation. Based on the Corporate Social Responsibility , a company can ensure that its economic growth is beneficial to everyone its suppliers ,employees,customers, the local population and all its stakeholders along with minimizing its impacts on the planet.Depending on the sector of captivity,the specific issues and challenges differ from company to company .For all companies being responsible also means taking care of its employees and ensuring their safety at work.It also means being compliant with the application of the various laws and regulations as well as defining ethical business practices .It also means reducing environmental impacts of its production sites and choosing less polluting modes of transport .Thus the ambition for a responsible company is to contribute to an economically efficient ,socially equitable and environmentally sustainable development whilst ensuring its profitability and economic growth . Within our daily activities, both individually and collectively, we can all be part of this evolution. CSR is a conviction resulting in concrete actions which are implemented with enthusiasm.

WHAT IS CORPORATE GOVERNANCE ?

“Corporate governance is maximizing the shareholder value in a cooperation while ensuring fairness to all stakeholders – customers, employees, investors, vendors, the government and society at large. Corporate governance is about transparency and raising the trust and confidence of stakeholders in the way the company is run.” (Murthy,2011-12)

OECD Definition (1999): “Corporate governance is a system through which business companies are managed and controlled .The structure of corporate governance defines the division of rights and duties between the individual stakeholders in a company and lays down detailed rules and procedures for the decision making on business matters of the company .On this basis a structure is created that establishes the company goals and the means of reaching the goals and monitoring performance.”

This definition was revised in 2004

OECD(2004):“ Corporate governance specifies the distribution of rights and responsibilities among the different participants in the organisation – such as the board ,managers ,shareholders and other stakeholders – and lays down the rules and procedures for decision making .”

The Corporate Governance Principles

A company may have as many guiding principles as its directors and founders think appropriate. Nonetheless, a number of them are shared by businesses and sectors.

(1) Equity

The board of directors is required to treat communities, vendors, shareholders, and staff equally and fairly.

(2)Openness

The board ought to give prompt, precise, and understandable information on topics like:

The financial results

Conflicts of interest

Hazards to stakeholders and shareholders

(3)Controlling Risk

The management and board must decide how to best control risks of all kinds. In order to manage risks and notify all pertinent parties of their existence and status, they must implement those recommendations.

(4)Accountability

The board is in charge of monitoring management operations and business affairs. It must be cognizant of and supportive of the company’s continuous, successful performance. Finding and employing a chief executive officer (CEO) is one of its duties. It must behave in a way that benefits a business and its investors.

WHAT IS  CSR ?

“ By stating their social responsibility and voluntarily taking on commitments which go beyond common regulator and conventional requirements which they would have to respect in any case, companies endeavor to raise the standards of social development ,environment protection and respect of fundamental rights and embrace an open governance, reconciling interest of various stakeholders in an overall approach of quality and sustainability.”

( EU Commission,2001,in Sacconi ,2004)

Types of CSR

The fundamental idea of corporate social responsibility (CSR) is to conduct business in a way that is sustainable in terms of the economy, society, and environment, even though it is a very broad concept that is interpreted and applied differently by each company.

Initiatives for corporate social responsibility are generally divided into the following categories:

1. Accountability for the environment

The sustainable use of natural resources and the reduction of pollution and greenhouse gas emissions are the goals of environmental responsibility programs.

2. Responsibility for human rights

Initiatives for human rights responsibility include opposing child labor and promoting fair trade and labor standards, such as equal pay for equal work.

3. The obligation to practice philanthropy

Contributions to causes, health initiatives, educational programs, and community beautification projects are a few examples of philanthropic responsibility.

4. Financial accountability

Initiatives for economic responsibility entail enhancing the company’s operations while engaging in sustainable practices, such as implementing a new manufacturing technique to reduce waste.

CSR’s Business Benefits

One could consider corporate social responsibility to be a form of public relations. Beyond that, though, corporate social responsibility can increase a company’s ability to compete. Benefits of corporate social responsibility:

1. Improved reputation, recognition, and image of the brand by building and preserving a positive corporate reputation and/or brand equity, CSR adds value to businesses.
2. A rise in sales and client loyalty consumers of a company that engages in corporate social responsibility (CSR) believe they are supporting the company’s deserving causes.
3. Savings on operating expenses investing in operational efficiencies lowers the environmental impact and saves operational costs.
4. Holding onto important and skilled workers knowing that they are employed by a company that engages in corporate social responsibility (CSR) tends to increase employee loyalty and retention.
5. Simpler financing access many investors are more inclined to back a company that engages in corporate social responsibility.
6. A lighter regulatory load a firm’s regulatory burden may be lessened with the support of strong relationships with regulatory agencies.

RELATIONSHIP BETWEEN CG AND CSR

“A society whose members pursue self interest without a sense of justice will eventually collapse.- A society whose members pursue self-interest checked by their sense of justice alone will survive. A society whose members pursue self interest, justice and interest of others will flourish.” (Adam Smith – Wealth of Nations – In Stovall ,Neill & Perkins ,2004)

 This implies “Rule making is bound by both the law and the social force of moral and ethical persuasion ” (Mason & Mahony ,2008)

 Organizational climate affects CSR :  ( Aguilera ,Rupp,Williams& Ganapathy,2007)

“If an organisation has a general  concern for fairness (that is respect and care for the environment ,for working conditions )employees may deduce that chances are conditions will be fair for them , thus satisfying their need for control .”

CG & CSR   (Sacconi,2004)

CSR refers to a model of extended corporate governance whereby who runs a firm ( entrepreneurs, directors ,managers ) have responsibilities that range from fulfillment of their fiduciary duties towards the owners to the fulfillment of analogous fiduciary duties towards all the firm’s stakeholders.

The primary duty towards owners is financial .The analogous duties could be the trust that others have placed in them to do the work ethically and to the best of their abilities .

Ethical business practices and an organization’s responsiveness to its stakeholders and the environment it operates in are the main topics of both corporate governance and corporate social responsibility. CSR and corporate governance improve an organization’s reputation and have a direct impact on its performance.

It is important to note that the core themes of corporate governance and corporate social responsibility are transparency, disclosure, sustainability, and ethical behavior. Furthermore, it is important to note that corporate governance is the broadest control mechanism that a company uses to make management decisions, while corporate social responsibility (CSR) is based on the idea of self-governance, which is connected to external legal and regulatory mechanisms.

LEGAL PROVISIONS RELATED TO CSR AND CORPORATE GOVERNANCE IN INDIA

A possible convergence between CSR and corporate governance emerges as CSR adjusts to the legal framework and current business practices, while corporate governance is increasingly motivated by ethical standards and the need for accountability. The following headings cover the provisions pertaining to corporate governance and CSR in India:

The Companies Act

The Securities and Exchange Board of India

Corporate social responsibility (CSR) in India is governed by Section 135 of the Companies Act of 2013 and the Companies (CSR Policy) Rules of 2014.

Qualifications: CSR is required of businesses with a minimum net worth of 500 crore, a minimum turnover of 1000 crore, or a minimum profit of 5 crore in the preceding year.

Duties: Businesses must Invest in CSR initiatives with at least 2% of their average profit over the preceding three years. Give local communities and their operational areas top priority when allocating their CSR budget.Report on their CSR initiatives once a year.Within six months following the fiscal year’s conclusion, transfer any unused CSR funds to a designated fund.

1. Policy: Businesses need to have a well-defined CSR policy.
2. Reporting: Every year, businesses are required to submit reports on their CSR initiatives.
3. Compliance: The Companies Act is governed by the Ministry of Corporate Affairs.

A number of laws and regulations pertaining to corporate responsibility are enforced by the Securities and Exchange Board of India (SEBI), including:

Report on Business Responsibility (BRR)

The top 100 listed companies are required by SEBI to publish a BRR on their websites and include it in their annual reports. The BRR reveals the methods the business has used to carry out its corporate social responsibility (CSR).

Sustainability reporting

 Environmental, social, and governance (ESG) parameters are among the sustainability-related factors that listed entities are required by SEBI to report on.

CSR committee

Establishing a CSR committee is mandatory for companies with a minimum net worth of Rs. 500 crore, a minimum turnover of Rs. 1000 crore, or a minimum net profit of Rs. 5 crore. A minimum of three directors, including one independent director, are required for the committee.

CSR spending

In each fiscal year, qualifying businesses are required to invest at least 2% of their average net profits in CSR initiatives.

Annual reports that include CSR information : A CSR report detailing the committee, CSR policy, expenditures, and other details must be included in the board’s annual report.

Furthermore, because some organizations like banks, insurance companies, stock exchanges, etc. have stricter governance standards, some industry-specific regulators, like the Reserve Bank of India (“RBI”) and the Insurance Regulatory and Development Authority of India (“IRDAI”), also prescribe governance standards. The RBI acknowledged the need for the banking industry to improve corporate governance in its report on the “Trend and Progress of banking in India 2022–23.” Corporate governance procedures of businesses are also influenced by the ramifications of director responsibility under several penal statutes, including the Prevention of Money Laundering Act of 2002, the Insolvency and Bankruptcy Code of 2016 (“Bankruptcy Code”), labor and environmental laws, and others.

CASE STUDY

(1) Innovation in renewable energy: Johnson& Johnson

Big pharma pioneer Johnson & Johnson is a great example of CSR at the forefront. For thirty years, they have concentrated on lessening their environmental effect. Their projects include everything from harnessing wind energy to supplying communities worldwide with clean water.

By acquiring a privately held energy provider in the Texas Panhandle, the company was able to lower pollution levels and offer a cost-effective, renewable substitute for electricity. With the aim of obtaining all of its energy requirements from renewable sources by 2025, the company keeps looking for renewable energy options.

(2) Social concerns: Google

In addition to its eco-friendly efforts, Google is trusted because of its vocal CEO, Sundar Pichai. He opposes social issues such as the anti-Muslim remarks made by President Donald Trump and the effects of artificial intelligence on society in the form of fake news and disinformation. Additionally, Google supports programs that promote inclusion in the workplace and in society at large in the following areas: Racial equity

Inclusion of people with disabilities, Equality of gender, Inclusion of LGBTQ+ , Inclusion of Veterans

Additionally, the company develops accessibility factors and tools to support minority-owned communities and businesses.

(3)Sustainability: Coca-Cola

Coca-Cola is prioritizing sustainability as a brand. Climate, packaging, agriculture, water conservation, and product quality are the main areas.

In order to ensure water security, they want to collect and recycle every bottle, make all of their packaging 100% recyclable, and return all of the water used to make their drinks to the environment. Their motto is “a world without waste.” Their goal is to reduce their carbon footprint by 25% by 2030.

Coca-Cola introduced its first bottle made entirely of plant-based plastic several years ago.“Our goal is to develop sustainable solutions for the entire industry. We want other companies to join us and move forward, collectively. We don’t see renewable or recycled content as areas where we want competitive advantage,” said Dana Breed, Global R&D Director, Packaging and Sustainability, The Coca-Cola Company.

HOW TO STRENGTHEN CSR FOR CORPORATE GOVERNANCE  ?

A few strategies to enhance a business’s CSR (corporate social responsibility) initiatives:

Establish goals: Clearly define corporate social responsibility (CSR) for the business and lay out an implementation strategy.

1. Complement corporate objectives: To make sure that sustainable practices complement the organization’s overarching goals, incorporate corporate social responsibility (CSR) into its core strategy.
2. Involve stakeholders: Prioritize issues, establish goals, and gather feedback by understanding their needs, interests, and concerns.
3. Volunteer: One well-liked CSR activity that can be interesting and adaptable is volunteering.
4. Establish a solid reputation: Businesses with effective CSR policies draw favorable attention from investors, customers, and the media.
5. Be open and responsible: Make sure the business is open and responsible for its CSR initiatives.
6. Work with neighborhood organizations: To meet the needs of the community, cooperate with neighborhood organizations.
7. Contribute money: Contribute money to worthy causes.
8. Locate trustworthy partners: Look for trustworthy partners with whom to work.
9. Supplier involvement: Include suppliers in CSR initiatives.
10. Make communication a priority: Give stakeholders’ communications top priority.
11. Create a specialized CSR department: Assign funds and form a team to create policies.

CONCLUSION

Corporate Social Responsibility and business strategies do not conflict. They complement one another to create lasting success and a constructive impact rather than competing with one another. Giving to charities isn’t and shouldn’t be the only aspect of corporate social responsibility. Organizations can genuinely impact many facets of society with a little work and strategic planning.

For many years, Milton Friedman’s statements that “there is one and only one social responsibility of business to increase its profits” and “business of business is business” summed up how companies approached their role in society. Nevertheless, it might be important to note that a lot has changed since Milton Friedman’s time; today, corporate governance and corporate social responsibility are essential components of any business.

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