Contents
INTRODUCTION ........................................................................................................................ 32 ETHICAL ISSUES WITH SECTION 135, COMPANIES ACT 2013 ........................................ 43 CSR AS AN ETHICAL DILEMMA ............................................................................................ 54 THEORIETICAL APPROACH ................................................................................................... 65 CONCLUSION ............................................................................................................................. 65 BIBLIOGRAPHY ......................................................................................................................... 87
INTRODUCTION
The concept of corporate social responsibility (CSR) has a long history associated with how it impacts on organizations' behavior. The term CSR was coined by Howard Bohen in 1953 through his famous article Social responsibilities of Business. (Bohen, 2014) First reports on the lines of Corporate Social Responsibility are attributed to Ben & Jerrys as well as Shell. (Townsend, 2011) The evolution of corporate social responsibility in India refers to changes over time in India of the cultural norms of corporations' engagement of corporate social responsibility (CSR), with CSR referring to way that businesses are managed to bring about an overall positive impact on the communities, cultures, societies and environments in which they operate. The fundamentals of CSR rest on a thesis that not only public policy but even corporates should be responsible enough to address social issues. The objective of Section 135 of the Companies Act, 2013 has evolved over a period of time through debate, discussion and consultation between Corporates, Government, Parliamentarians, Civil Society, NGOs etc. Companies having net worth of at least Rs.500 crore or having minimum turnover of Rs.1,000 crore or those with at least net profit of Rs.5 crore, have to spend at least 2% of their three-year average annual net profit towards CSR activities. Schedule VII of the draft rules specifically mention a list of eight activities which may be included by companies in their CSR policies, along with a customary line such other matters as may be prescribed.: 1. 2. 3. 4. 5. 6. 7. 8. 9. Eradicating extreme hunger and poverty, Education, Gender equality and women empowerment, Reducing child mortality and improving maternal health, Combating HIV, malaria and other diseases, Environmental sustainability, Provision of vocational skills, Social business projects, Contribution to PMs National Relief Fund and such other funds set up by Government.
Formatted: Highlight
This Schedule can be amended by the government and need not go back to Parliament for any change. The government has not set up any audit mechanism as to keep a check on how the mandated 2% of the profits are being spent. The corporates have the liberty to maintain to do internal auditing or third party auditing. The Companies Act, 2013 also has provision through which companies can exempt themselves from exercising section 135. They have to give written explanation as to why the company should be exempted from this regulation. One of the interesting things about Section 135 is that it does not lay out any penalties for non-compliance. (cuts-international.org, 2013)
Formatted: Highlight
Comment [NRGS3]: !
Formatted: Highlight
Comment [NRGS6]: With a government mandate, this is no more a dilemma but a statutory requirement. See comment 7 Formatted: Highlight
Formatted: Highlight
Formatted: Highlight
THEORIETICAL APPROACH
Principle of Fairness: This theory was developed by Robert Philip which formed a normative argument for various other theories that claim for ethical obligation in corporate social responsibilities. The Principle of fairness says that if a group of people works together to provide some benefits at some cost of them, then anyone who takes the advantage of those benefits has an obligations to contribute his or her share to the groups. (Velasquez, 2014) Stakeholder Theory: This view was put forwarded by R. Edward Freeman that says manager should give all stakeholders a fair share of the benefits a business produces. (Shareholder Theory)This theory claims that a companys stakeholder work together to secure the conditions the company needs to operate successfully and they do this at some cost to themselves. Shareholder Theory: The shareholder view of Friedman says a managers only responsibility is to legally and ethically make as much money as possible for shareholders. According to this theory, a manager has no right to give company money to social causes when doing so will reduce shareholders profit, because the money does not belong to the manager but to shareholders. (Velasquez, 2014) Companies should be responsive to all its stakeholders and that would include making the economic and discretionary contributions society expects, as well as behaving ethically and legally towards its stakeholders.
CONCLUSION
To be or not to be is not a question of compromise. Either you be or you dont be-Golda Meir (Golda Meir, 2013) Every single business stays in the market and sustains itself only because it is providing its fellow beings something that is of utility. This act of providing something of utility in itself is a social work. Prices are only a mechanism to guide resources to where it has the most optimum use and profits are an incentive for people to work. The primary objective of a business entity is to maximize value for both its shareholders and customers and CSR hinders the same. There is a whole lot of difference between spending your own money voluntarily and spending shareholders money. The current stipulation from the government through Section 135 of the Companies Act, 2013 runs contrary to dreams and desires of millions of shareholders who put their hard earned money in various companies through stock markets. Spending 2% of profits in activities other than in the natural course of business is required to term it as a CSR activity. In real life it is not the same, as every other company helps its fellow
Formatted: Highlight
beings in the very course of its normal business activities. CSR also hurts the consumers as the cost of being philanthropic is passed on to customers in terms of shoddy services and high prices. Efficiency in business reduces the cost, and the benefit of which is passed on to the consumers as low prices. The money that could have been re-invested in the business to either expand or to become more efficient would now be squandered away in the name of CSR. Mobile and Airline industry are prime examples of how increased efficiency can reduce the cost and bring social change. The responsibilities of a business towards its various stakeholders are: 1. 2. 3. 4. Maximize profits for the shareholders. Give maximum value for the price paid by the customers. Ensure suppliers are given commensurate to the services that they provide. Ensure employees are given salaries and benefits adequate to the skill sets that they provide. 5. Ensure dealers are given maximum value for the time they are investing in you. A company that should be focused on its core business activities and responsibilities stated above would now be cracking its head on how to spend 2% of its profits on philanthropy, which is not a responsibility of a responsible business entity. In the nutshell, mandating CSR seems to be nothing more than a despotic act of a growingly tyrannical government which asks people to spend what rightfully belongs to them on something that they voluntarily would never spend on. Moreover it is a loosely drafted law which can be easily taken for a toss. It would be better to see this section of Companies Act, 2013 getting repealed and this basic idea of social responsibility be left to corporates to decide and voluntarily work upon.
Formatted: Highlight
BIBLIOGRAPHY
1. (2013, August 03). Retrieved from cuts-international.org: http://www.cutsinternational.org/pdf/Draft-CSR_Rules_2013.pdf 2. Golda Meir. (2013, March 24). Retrieved from Wikiquote.org: http://en.wikiquote.org/wiki/Golda_Meir 3. The Economic Times. (2013, Sep 25). Retrieved from economictimes.indiatimes.com: http://articles.economictimes.indiatimes.com/2013-09-25/news/42394669_1_drip-irrigationfarming-market 4. Wikipedia. (2014, feb 10). Retrieved from wikipedia.org: http://en.wikipedia.org/wiki/The_road_to_hell_is_paved_with_good_intentions 5. Bohen, H. (2014, February 08). University of Iowa Press. Retrieved from uiowapress.org: http://uiowapress.org/books/2013-fall/social-responsibilities-businessman.htm 6. Friedman, M. (1970, September 13). The Social Responsibility of Business is to Increase its Profits. Retrieved from colorado.edu: http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html 7. Klempner, G. (2009, January 09). CSR AN ETHICAL DILEMMA. Retrieved from klempner.freeshell.org: http://klempner.freeshell.org/articles/dilemma.html 8. Planes, A. (2013, June 09). Daily Finance. Retrieved from dailyfinance.com: http://www.dailyfinance.com/2013/06/08/why-is-monsanto-the-most-hated-company-in-theworl/ 9. Shareholder Theory. (n.d.). Retrieved from rintintin.colarado.edu: http://rintintin.colorado.edu/~vancecd/phl306/share.pdf 10. Townsend, S. (2011, February 09). The Guardian. Retrieved from theguradian.com: http://www.theguardian.com/sustainable-business/blog/sustainability-csr-reporting 11. Velasquez, M. G. (2014). Business Ethics Concepts and Cases. Delhi: Pearson Prentice Hall. 12. Vijayaraghavan, A. (2011, july 26). Triple Pundit. Retrieved from www.triplepundit.com: http://www.triplepundit.com/2011/07/making-csr-mandatory-india/
Sl No 1 2 3
Criteria for evaluation Description of the ethical issues and dilemma Application of ethical theories and approaches to resolve the dilemma Quality of referencing Pl note that referencing is extremely important for an objective study. The quality of articles referred should be very good. Total Pl note that in the final report, I will be evaluating your report for the components mentioned under Basis for evaluation (see page 5 of the Course Hand out), most importantly resolution of the dilemma and suggestions for avoiding such dilemma in future (recommendation of systemic changes)
Max marks 3 4 3
Comment [NRGS9]: This section needs improvement. Discussions are sketchy. Comment [NRGS10]: All references are to be built into body text. Adopt APA style. Fill in all fields of reference.
10
7.5
The Friedman article could be contrasted with the 2005 article by Sumantra Ghoshal in Academy of Management Learning and Education on "Bad Management Theories Are Destroying Good Management Practices," which is a strong critique of the assumptions of neoclassical/institutional economists. Regulatory assumptions can be questioned from the two perspectives.