 The World Business Council for Sustainable Development in its

publication Making Good Business Sense by Lord Holme and

Richard Watts, used the following definition:
“Corporate Social Responsibility is the continuing commitment by
business to behave ethically and contribute to economic development
while improving the quality of life of the workforce and their families
as well as of the local community and society at large.”

Arguments in Favor of Corporate Social Responsibility:

Corporate social responsibility is the commitment of business to
behave ethically and to contribute to sustainable economic
development by working with all relevant stakeholders. Following
arguments are in favor of CSR:
1. The Iron Law of Responsibility: The institution of business exists
only because of its invaluable services to the society. Therefore if a
business intends to operate, it must respond to the needs and
expectations of the society. The inputs of a business and outputs are
regulated by the society and these must be acceptable to the society.
This is called iron law of responsibility. If power is not used
responsibly in the long run it is bound to be lost.
2. Achievement of Long-term Objectives: Business
entrepreneurs understand that it is in their interest to fulfill the
demands and expectations of the society. Since business has been
given economic power and access to productive resources of society,
they are obliged to use those resources for the welfare of the society.
Technical resources of the business if applied to social problems can
resolve them better. This results in:
(a) Easier labor recruitment
 (b) Reduced employee turnover and absenteeism
(e) Dependable creditors and debtors
(4) Easier access to foreign capital and technology.
Certainly a better society provides a conducive environment in which
the business gains long-term profit maximization.
3. Social Responsibility avoids Government Intervention: When
corporation voluntarily responds to social expectations, the
intervention of government is no more needed to control business
activities. Regulation and control restrict flexibility of doing the
business. Once government control is established it is never done
away with. The prudent course hence is to have socially responsible
behavior and thereby give government no opportunity to intervene.
4. CSR recognizes Socio-cultural Norms and Respects Social
Consciousness: Since an enterprise operates within a framework of
socio-cultural norms it has to work within the desirable limits set by
the society. The society certainly expects good quality product, fair
trade practices, and safety measures at work, and labor welfare into
consideration and this is automatically taken care of in the CSR
orientations.

5. Improved financial performance: Research has shown a positive

relationship between CSR activities and financial performance of the
firms

6. CSR Increases Sales and Customer loyalty: There is empirical

evidence which shows relationship between companies that are socially
responsible and growing market for their products and services.
Business has to satisfy customers on key criteria such as price, quality,
availability, safety and comfort.
7. Helps Minimize Ecological Damage: Many corporations damage the
environment. By socially responsible behaviour, a business may
minimise damage to the ecological balance.

8. Profit is to be viewed as Long-term Objective: Economic objective of

profit is to be considered as the long-run objective. Expenditure on
social issues certainly reduces short-term profit but increases consumer
loyalty and business standing which is certainly conducive to long-term
gains.

Arguments against Corporate Social Responsibility

The criticism of CSR is for the following reasons:

1. CSR is a Vague Concept: The concept of CSR has no clear definition. It

has multiple interpretations. The nature and scope of CSR has no definite
boundaries. Since everything that has negative impact can be put in the
purview of CSR, enterprises are rather afraid of it.

2. Dilution of Profit Maximization: Economic wealth creation is the objective

of any economic institution. If the managers start bothering about other
objectives they are bound to lose their focus.

3. The "Taxation Argument": Investors according to the "taxation are

shareholder their money to the managers of the corporation in order to make
profits for the shareholders. Spending money to pursue social ends is a form
of taxation.

4. Conflicting Considerations: Two conflicting considerations wealth

maximization and social responsibilities could leave business managers in
confused state. As a result it may lead to poor management.

5. CSR could be a reason of "Market Failure": Social responsibility assumes

that markets are not perfect and market mechanism is not the appropriate way
to allocate scarce to alternative uses. Thus an alternative mechanism should
exist. This will lead to loss of productivity and efficiency in business.
 MODELS OF CSR
Even though, there is unanimity on the need to have social responsibility
orientation in conducting the business, there are number of ways in
which CSR is defined. In some approaches CSR is conceptualised as a
vogue notion or a belief; others have presented models defining the
purpose of business in the society, in which CSR is a part. Some of the
approaches or models of CSR are:
The Classical Model or Shareholder Value Theory
Shareholder Value Model holds that only social responsibility of
business is making profits and shareholder value maximization is the
supreme goal for corporate governance and business management. Other
social activities which companies could undertake would be acceptable
if either prescribed by law or these contribute to the maximization of
shareholder value. Milton Friedman, the main protagonist of the model
wrote 'the only one responsibility of business towards the society is the
maximization of profits to the shareholders, within the legal framework
and the ethical custom of the country'.
The theory has been quite common in the USA and other Anglo-Saxon
countries until the mid-twentieth century. This model of CSR goes along
the agency theory of corporate governance in which owner or the
shareholders are regarded as the principal and managers as the agents.
Friedman's argues that corporate executives are acting in their official
capacity and not as private persons and are agents of the stockholders of
the corporation. Management of the corporation have an obligation to
make decisions in the interests of the stockholders, who are their
employers. He further argues that to say that corporate executives have a
social responsibility implies that they should act in a manner that is not
in the interest of his employers. For example he should not increase the
price of his product in social interest even if the price of inputs is going
up. A corporate should not be spending someone else's money for a
general social interest. Corporate cannot be allowed to become civil
servants because they are not elected by political process instead are
selected by stockholders of private business firms.
However Friedman does not sanction unrestrained pursuit of profit. He
acknowledges that business must observe limitations on permissible
conduct and describes it as "rules of the game." Business activity
requires a minimal state in order to prevent anti-competitive practices
and to enforce the basics of commercial law. Friedman recognises that
many socially responsible actions are disguised forms of self interest.
Corporations receive indirect benefits from the contributions, and these
serve as effective means for making a profit and not as philanthropic
activities.
The classical view recognises intervention by the government for the
public welfare. It is not that corporations are allowed to act in a socially
irresponsible manner but are relieved of thinking about it.
The classical view about the nature of the corporation is explained by
James W. McGuire in three basic propositions:
1. Economic behaviour is separate and distinct from other types of
behaviour and business organizations are distinct from other
organizations even though same individuals are involved in business and
non-business affairs. Business organisations do not serve the same goals
as other organisations in a pluralistic society.
2. The primary criteria of business performance are economic efficiency
and growth in production of goods and services including improvements
in technology and innovations in goods and services.
3. The primary goal and motivating force for business organizations is
profit. The firm attempts to make as large a profit as it can, thereby
maintaining its efficiency and taking advantage of available
opportunities to innovate and contribute to growth.
The classical view argues that corporations should engage in economic
activities and activities surrounding these. Social concerns are given no
importance and are the prerogative of the State. This view thus confines
the role of corporations to the economic aspect only.
This approach is supported by law especially in Anglo-Saxon countries
and many companies are operating under this conception. In practice,
however, shareholder value reflects only short-run profits. Evidence
show that economic success in the long-run cannot be achieved unless
the interests of employees, customers, local communities and other
groups who have a stake in the company is taken care of.

Trusteeship Model
Mahatma Gandhi's philosophy of trusteeship is concerned with social
responsibility of business. Since in large corporations management and
ownership are diverse, managers are the trustees of business. Even the
supplier of capital should not treat the wealth as their own but consider it
as capital held in trust for the society. Thus corporate management is an
inclusive concept and includes labour, consumers, government and
society besides the management. Directors have been traditionally
considered as trustees of the shareholders and should use the corporate
resources judiciously. Gandhi ji did not mean trustee only in the legal
sense but implied a good deal on moral grounds. His theory of
trusteeship makes no distinction between private and non-private
property. All property is considered to be held in trust irrespective of
who possesses it and what is its nature and quality. The theory of
trusteeship applies to tangible and transferable property and also to
intangible, non-transferable property, power and position.
Carroll's Model of CSR
Archie B. Carroll introduced "The Social Performance Model' in 1979.
The model regards CSR as a multi-layered four inter-related aspects
joined together into one Corporate Social Performance, Carroll stated
four-dimensional definition which describes the social responsibility of
business in more exhaustive and complete way than previous definitions.
"The social responsibility of business encompasses the economic, legal,
ethical and discretionary expectations that society has of organizations at
a given point of time." This suggests that responsibility of the business
encompasses not only basic responsibilities such as economic and legal
ones but also ethical which goes beyond regular activities of companies
and philanthropic acts which although voluntary, are desired by the
society. The definition consists of all social expectations for the
business. Carroll regards CSR as a multi-layered four inter-related
aspects:
(a) Economic,
(b) Legal,
(c) Ethical, and
(d) Philanthropic responsibilities.
The four aspects of CSR are presented in layers within a pyramid which
can be seen as follows:

The total corporate social responsibility of business entails the

simultaneous fulfilment of the firm's economic, legal, ethical, and
philanthropic responsibilities. Stated in more pragmatic terms, the CSR
firm should strive to make a profit, obey the law, be ethical, and be a
good corporate citizen. For example, a Food Company which has
decided to produce healthy yogurts and donate part of the sales income
to the destitute in an area. This is an example of the action which falls
under every single responsibility suggested in the model. These can be
explained as follow.
Economic Responsibility: The satisfaction of economic responsibility is
required of all corporations.
1) Using economic resources efficiently
2) Having sound commercial practices
3) Generating internal funds
4) Keeping economic interests of investors or shareholders.
5) Fairly paid jobs
6) Good quality products at a fair price.
Legal Responsibility: Since the State has predominant role in regulating
corporate practices, legal responsibility is the basis of social
responsibility. These include:
1) Paying taxes, licence fees and fines in time
2) Follow economic and labour laws of the nation
3) Provide necessary information required by the government of the
host and home country.
Ethical Responsibility: The corporate agenda regarding social issues
are located in the area of ethical responsibility. Since there is so much of
business criticism, there is a constant reaffirmation of their social
legitimacy. Hence it is needed that the business follows:
1) Fair trade practices
-2) Anti-pollution steps
-3) Reasonable prices and good quality products
4) Safeguard interests of the community at large.
Philanthropic Responsibility: These are more or less discretionary
responsibilities of the corporation. The business has discretion to assume
the following responsibilities:
1) Contribute to the welfare of local communities
2) Contribute to healthy environment
3) Generate employment for the population of place where the business
operates
4) Help weaker sections of the society.
The pyramid CSR is actually corporate social responsiveness which
refers to the capacity of a corporation to respond to social pressures.
Carroll explains four 'philosophies' or 'strategies' of social
responsiveness which are:
Reaction: The Corporation denies any responsibility for social issues by
claiming that these are the responsibility of government.
Defence: The corporation admits responsibility but fights it, doing the
very least that seems to be required.
Accommodation: The corporation accepts responsibility and does what
is asked by its stakeholders.
Pro-action: The corporation seeks to go beyond industry norms and
anticipates future expectations by doing more than is expected.
It is not that once decided an organization follows that strategy. Rather
most of the corporations have a shifting strategy of social
responsiveness. It is because of this that Donna Wood combines three
elements in the concept of Corporate Social Performance. These are:
(a) The principle of being socially responsible
(b) The process of social responsiveness, and
(c) Socially responsible outcome.
This makes the content of an actual response important since it
represents the outcome of being socially responsible.
Corporate Social Performance Model is helpful to understand that social
responsibility is not a separate issue from an economic performance. As
per the model, the fully responsible company is that which meets all four
categories of responsibility (economic, legal, ethical and discretionary
one), is involved in social issues which are relevant to the industry and
the time that company operates and its actions are the responses to the
actual social expectations in the given point of time. Responsible
company is able to integrate corporate social responsibility, corporate
social responsiveness and urgent social issues with its operations.
Corporate Social Performance provides comprehensive guideline of the
company's efforts that should be made to become a social friendly
company. In conclusion, socially performing company can effectively
and successfully operate in the social environment because it is able to
recognize social expectations, issues and react in the proper way to
prevent social discontent. The pyramid of corporate social responsibility
provides a framework for understanding the evolving nature of the firm's
economic, legal, ethical, and philanthropic performance. The
implementation of these responsibilities may vary depending upon the
firm's size, management's philosophy, corporate strategy, industry
characteristics, the state of the economy, and other such mitigating
conditions, but the four component parts provide management with a
skeletal outline of the nature and kinds of their CSR.

Modern View: Stakeholders Model

The stakeholders approach to CSR has primarily been developed by
Edward Freeman in 1980s. It provides an alternative to the view that
stockholders are the nucleus of a corporation. The stake- holders
approach is that corporations are operated or ought to be operated for the
benefit of all those who have a "stake" in the enterprise including
employees, customers, suppliers and the local community. A stakeholder
includes all those groups who are vital to the survival and success of the
corporation and any groups or individuals who can affect or is affected
by the achievement of the organizations objectives.
The stakeholder approach starts by looking at various groups to which
the corporation has a responsibility. The underlying thought is that
corporations have to be managed in the interests of whole range of
groups that have legitimate interest in the corporation rather than
shareholders alone. To find out which are the groups who have
legitimate interest Evans and Freeman suggest two principles:
1. Principle of corporate rights which requires that a corporation is
obliged not to violate the rights of others.
2. Principle of corporate effect, which requires a company to be
responsible for the effects of their actions on others.
Thus range of stakeholders differs from company to company and from
one situation to another. The stakeholders can be seen as:

Thus we have seen that a corporation has responsibility towards

different stakeholders. This can be listed as follows:
Responsibility towards Shareholders
Shareholders are the true owners of the corporation. These investors
expect a high rate of return and appreciation of their capital. The
responsibility of corporation towards them is:
1. Safety of investment of funds needs to be ensured.
2. Assets of the business have to be safeguarded.
3. Financial position of the company is to be strengthened. This will then
result in capital appreciation.
4. A regular return on the investment of shareholders is to be provided.
5. Financial position of the company should be informed with utmost
transparency.
Responsibility towards Employees
For any large corporation the true asset is its work force. Their
cooperation or conflict determines any corporation's destiny. Following
obligations should be fulfilled by a firm towards employees:
1. Salaries or wages are true motivation for any employee. Hence
reasonable wages must be paid.
2. Hygienic working conditions have to be ensured.
3. Service benefits such as housing, medical etc. are to be provided.
4. Positive human relations are to be established within an organization.
5. Participative management is the best form of management.
6. Adequate opportunities have to be provided so that workers develop
skills through training and education.
Responsibility towards Customers
Consumer satisfaction is and has to be the main objective of any
business enterprise to survive in the long run. Hence a corporation has to
ensure the following:
1. Provide goods which meet the needs of the consumers of different
categories.
2. Goods and/or services are of the best possible quality.
3. Goods have to be provided at a fair price.
4. Regular supply of goods is to be ensured.
5. Adulteration can be the worst thing so it should be avoided.
6. Misleading and deceptive advertisements have to be avoided under all
circumstances.
7. All information revealed by the business should be honest and
truthful.
8. Fair trade practices are what the consumer always expects from any
business.
Responsibility towards Suppliers
To ensure that the suppliers keep on regularly supplying goods and
services, it is essential that a business enterprise creates healthy relations
with them. This can be done by:
1. Ensuring fair terms and conditions regarding
(a) Price
(b) Quality
(c) Delivery of goods
(d) Payment.
2. Regular payments should be made to the suppliers
3. Small scale suppliers have to be encouraged and brought to the main
network.
4. Exploitation of suppliers needs to be avoided.
5. Suppliers should be given positive feedback to improve the quality of
the product.
Responsibility towards Government
Business has always had the obligation to abide by the laws of the State.
It is also the responsibility of the business to do the following:
1. To conform to the policies, guidelines, rules and regulations of the
country.
2. To pay taxes, fees and fines in time.
3. No attempt should be made to corrupt government employees.
4. Concentration of economic power by forming cartels should be
avoided.
5. Fair dealing in foreign trade is must for any country.
6. Fair trade practices should be followed to have healthy business
environment.
Responsibility towards Society
Business has obligations to the society at large in which it operates. It
has to be responsible in all its actions and activities. Some of these can
be listed as:
1. To provide balanced growth of various regions.
2. Ensure safety of local surroundings.
3. Not to pollute or degrade the environment.
4. To provide welfare of the people and the region in which the business
operates.
5. To generate employment opportunities.
6. To provide safe, healthy and good quality products to the society.
7. Provide for schools, dispensaries and low cash housing in the area of
business
8. Avoid all types of unfair and anti-social practices.
9. Not to support any political or illegal activity.
10. A business enterprise should do everything to promote peace and
harmony in the society. Freeman has added two perspectives to the
shareholders theory which leads it to the stakeholder theory:
1. Legal Perspective: A corporation has legally binding contract to
suppliers, employees or customers. There is whole range of dense
network of laws and regulations enforced by any society.
2. Economic Perspective : From long term profitability point of view it
is essential to take care of customers, employees or suppliers.
Shareholders cannot be made the main focus because often their
perspective is short-term speculation and not long term growth.
Thomas Donaldson and Lee E. Preston have described three variants of
the stakeholder’s model. These are:
Descriptive Stakeholder Theory: This model can be used as a
description of the corporation which helps in its smooth understanding.
The theory ascertains the manner in which corporations actually do take
into account stakeholders interests. The belief that the stakeholders
model is an accurate description can be confirmed to the extent of
empirical verification
Normative Stakeholder Theory: The stakeholders model is used as a
normative account of how the corporations ought to treat their various
stakeholders groups. This explains why corporations should take into
account stakeholders interests.
Instrumental Stakeholder Theory: This model can be used
instrumentally as a tool for managers. The theory attempts to answer the
questions of whether it is beneficial for the corporation to take into
account stakeholders interests. Telling managers to handle stakeholders
relations is a more practical guide than maximizing profits.

Limitations of Stakeholder Model

1. Employing the stakeholder model will not necessarily result in long-
term profitability. There are companies that have failed, despite of their
commitment to their stakeholders.
2. In its normative use, the interests of all groups other than shareholders
constitute "constraints" on corporate activities rather than goals.
3. Satisfying employees, customers, suppliers and general public are
means of achieving the end of making a profit.
4. "Responsibilities" and "Objectives" are not the same. Responsibilities
are obligations that limit the achievement of the main objectives.
5. This model cannot be used as an action guide for business. This is
because it implies that benefits of one group must be balanced against a
loss to another. There may often be problem of colliding stakeholder
rights. In a situation, for instance, when the interests of stockholders and
employees do not align, how does one make management decisions may
be intriguing.
6. To structure the corporation to ensure the well-being of all the
corporate constituencies is a difficult task.

To accomplish this process of CSR in any business enterprise the key

strategies that corporation adopts are:
(a) Mission, vision and value statements.
(b) Cultural values of the organisation.
(c) Management structures are reviewed.
(d) Strategic planning is done.
(e) General responsibility is discharged.
(f) Employees are recognized and rewarded.
(g) Communications, education and training is done.
(h) CSR reporting is made an integral part of information reporting.