Q.12. How has corporate social responsibility evolveti and where does Neville Isdell’s idea of “Connected Capitalism fit into this?
Ans. Over the past twenty years, multinational companies (M (‘cJ have made important changes to their corporate social responsibility (CSR) policy. There has been a marked shift from the past, when CSR activities were unrelated to the company’s core business and were largely reactive, attempting to stem or prevent criticism rather than promote real development. Companies have begun approaching CSR in a more strategic way, recognizing that aligning these projects with their business model and goals can effectively improve a company’s competitive advantage. In doing so, MNCs have increasingly leveraged their core assets including their supply chains, sourcing, human resources, technology and innovation, access to markets, and the global reach of their companies. There has been an accompanying shift in the perception of CSR. In the past, there were many critics who argued that a company’s sole responsibility was to provide value to its shareholders. They argued that SR runs contrary to the interest of the company and by extension to the shareholders. However, there has been a growing consensus, especially among U.S. companies, that CSR is necessary and beneficial; both to the communities it benefits and to the companies themselves.
Although companies have taken on greater responsibility, there is a need for even greater commitment and engagement of the top level management. As result of the global financial crisis, the rise of non-state actors in the global economy, and shifting demographics in the form of urbanization and rising inequality, the free market system is in flux. In this turbulent environment, populist and protectionist pressures are challenging the open market system. The private sector has incredible assets to courter these backward forces and promote an open, global economy.
Neville lsdeH, former chairman and CEO of the Coca-Cola Company, has proposed one approach for how companies can connect with society and contribute to the resolution of social problems while at the same time ensuring sustainable and profitable growth in the twenty-first century. Mr. Isdell’s concept of MNC engagement, what he calls “Connected Capitalism,” goes beyond the new, engaged CSR to a new level of connectedness between the private sector, governments, NGOs, and civil society across three main platforms: communities, institutions, and their core business strategies.
Q.13. What is
corporate social responsibility? Why corporate social responsibility is
necessary? How will CSR benefit the company? (2013)
Ans. Corporate Social Responsibility: Corporate social responsibility enables companies to create a positive impact in the community and build its positive image in the society in which it operates.
Corporate Social Responsibility pertains to the corporation’s interaction with society and its responsibilities to society in general. It demands that commercial success be gained through positive practices thai aim to promote general welfare. Success, after all, is not only measured in monetary terms but also the corporation’s impact on the community, on its customers and on the environment.
Corporate social responsibility may come across as a highly idealistic endeavour but it actually produces highly favourable and observable results. Recent research studies reveal that companies that are perceived by the public to adopt more socially responsible business practices and ethics are more likely to perform financially better than those companies who don’t.
DePaul University conducted a study in 2002 to determine how the 2001 Business Ethics Best Citizen companies fare in their operations compared to other companies. The results showed that the former scored higher in financial standing than the latter. Studies also indicated that Corporate Social Responsibility allows companies to have lower operating expenses because they are able to make use of recycled materials. Consequently, waste-disposal costs are also effectively lowered.
Benefits of Corporate Social Responsibility
(1) Practitioners of Corporate Social Responsibility also gain better reputation and brand image in the process.
(2) A better reputation in business often translates into better sales and more investors.
(3) Customer loyalty also increases in the process.
(4) Customers will switch their loyalty to another company if the corporation has negative citizenship image.
(5) Also, employees would look for another job if the company did not support their values.
(6) Another positive outcome of CSR is that companies who consistently demonstrate compliance to regulatory requirements are given greater freedom by both national and local governments.
(7) Investors also look for companies that practise socially responsible investing (SRI).
(8) Corporate social responsibility should be made an essential part of the wealth creation process. It is the best way to make the environment sustainable and available for future generations. With responsible corporate citizenship, wealth begets more wealth in the process.
Q.14. Corporate governance is acceptance by management to safeguard the rights of shareholders as true owner of the corporation and their role as trustees on tehalf of the shareholders. Elucidate the statement.
Ans. Corporate Governance; Corporate governance is all abOut commitment to values, about ethical business conduct and about making a distinction between personal and corporate funds in the management of a company. Corporate governance emanates from business ethics. It is about conducting the business in an honest and transparent manner whereby every stake holder, viz owners, employees, shareholders, suppliers, customers, government, society and even competitors, gets its rightful share from the business and no single entity is able to corner disproportionate share of profits. Voluntary adherence to honest business practices has been eroding over the years as evident by recent exposures. Enron/Ai-ther Anderson, Worldcom and Zerox are rather famous examples, but there have been many in the recent past. Watergate scam of 80s in the US had led to formation of what is now popularly called Cadbury’ Committee. Some very large multinational banks have failed in the last decade. Failure of Bank of Credit and Commerce International in 1992 being the largest and most rattling one. The maipractices were so heinous and rampant that it earned the epithet of “Bank of Crooks and Criminals International”. But such happenings are not new. Only their scale has grown due to globalization. But such failures of seemingly healthy businesses brought into focus the need for corporate governance. It led to a feeling that many of the good business practices, hitherto left as ethical thoice, need to be codified. And thus took the birth of concept of Corporate Governance. In India the concept of Corporate Governance took its birth after the stock market scams of 90s first led by Harshad Mehta and later by Ketan Parikh. Securities and Exchange Board of India (SEBI) was formed in 1992 to check irregularities and ensure smooth functioning of stock exchanges. However, even before it could get its act together, Harshad Mehta scam broke out. Even later, there were large scale scams involving Cooperative Banks, Finance companies, Plantation companies, large stock broking houses and so
on. Even Unit Trust of India was not spared from these irregularities. But while so many companies turned sick and small investors lost billions of their hard earned money, promoters continued to prosper nevertheless. SEBI constituted a committee on corporate governance under the Chairmanship of Mr Kumar Mangalam Birla, a leading Industrialist and member of SEBI.
Need for Corporate Governance
(1) No information is given to investors regarding diversification, expansion, change in business, loss of business etc and instead used by promoters and top management for insider trading at the cost of small investors.
(2) Many large companies are known to manipulate rules and even govt policies with the help of bureaucracy and political meddling.
(3) If investors, Fil and general public put their money, they have every right to ask for any type of information about company. The fundamental objective of Corporate Governance is the enhancement of shareholder’s value, keeping in view the interest of other stake holders and controlling of the above mentioned malpractices. This harmonises the need to strike a balance at all times between the need to enhance shareholder’s wealth whilst not being too detrimental to the interests of other stakeholders in the company.