The devolution of financial powers between the States and the Union governments in the Constitutional Federal structure probably does not unambiguously clarify the role of economic policy making at the State level. The US model and the EEC models are as much complex and could have been contrasted with Indian economic federalism for reforming the Indian system. This has not been done and the States have generally used political process to satisfy the State’s demand. West Bengal being the top industrialized State at the time of Indian Independence had to give up much of its legitimate demand for modernization and growth to accommodate the nice little slogans for balanced economic growth and backward region development. Therefore, West Bengal elites and intellectuals never used economics for policy making for the State. Nor did West Bengal have any view on what the State’s economy was, is or would look like in future. Selling dreams that would never be realized constituted economic policy making. For decades, West Bengal economy has been conceptualized primarily as a vehicle to demand, get or forget higher allocation of Government of India projects and expenditure in the state. The State Government published an economic survey every year with economic data and self-congratulatory composition: State Planning Boards and State Planning Department had been there without any perceptible impact on the State’s economic policy making and development.
2. West Bengal is only one among the several States in the Indian Union. In this Federal set up with constitotionally devised devolution of economic/ financial powers between the Central and State Governments, how far can a State pursue a set of economic policies that would effectively contribute to the economic growth, lower inflation/ higher protection against inflation, better employment, better income and wealth distribution and better quality of life for the State's citizens on a sustained basis? This has been discussed time to time in the past mainly from a political perspective but has not really been pursued consistently by Indian economists to yield a reasonable theories so far. When the economic reforms were introduced in the early 1990s, many political parties objected to liberalization, privatisation and globalization but did not have an alternative economic theory of their own (even the Congress which happened to be in Government and had to reluctantly being the economic reforms, did not have any consistent economic model or theory to justify the process of liberalisation). The Communist economist turne politician Finance Minister of West Bengal Dr. Asim Dasgupt proposed some alternative model that was probably unattractive to the economists and politicians including the communists and lost significance with the CPM government of West Bengal seeking collaboration of foreign capital from capitalist economies for the State's industrialisation. Many claim Chandra Babu Naidu of Andhra Pradesh did wonders for Andhra Pradesh and wonder about the economic successes of Gujarat under Narendra Modi. But the issue of economic policy formulation at the State level has benn neglected.
3. The issue had been rather one of getting more resources to the States from the Central pool. With the introduction of General Commodity and Service Tax is likely to intensify the conflict between the States and the Union Government. But how could the individual states pursue economic policies to meet specific goals of the States is not something that Indian economists have attempted. The European Common Marketm European Central Bank and Euro Curency is not yet successful and may be inconsistent with Indian federalism. But Indian economists have not generated any new theories or ideas to deal with the basic issue of economic policy making by individual State.
Economic Policy Paradigm of Government as Son of God
4. This was only natural because the State Government had envisaged a four-fold economic role:
(a) as a machinery to use whatever revenues happen to flow in to the exchequer and borrowings from the households’ savings pool for disbursing salaries (and pensions) to its ever increasing and scarcely performing staff and interest payment on ever increasing borrowings with sky as the limit,
(b) as a mechanism of acquisition of land with paltry or no compensation to the land owners and distributing them at low cost or free to others without land and needing land to do farming, set up factories and build residential buildings,
(c) as a catalyst for proliferating a micro-economic market structure of geographically and functionally distributed muscle-powered ‘license/ permit’ monopolies in the supply of building materials, education and medical services, in intermediation services for various sorts from allowing regularizing various unauthorized businesses like tea stalls, food stalls, vegetable and fish stalls, automobile repairing, construction of residential shanties and baths on footpaths, main roads, strips of lands meant for expansion of roads, as also in intermediation services for getting ration cards, birth certificates, hospital admissions, and
(d) as an unsolicited, unremunerated adviser to the Government of India on the inappropriateness and disastrous consequences of all the economic policies that it happens to pursue except nationalization, higher subsidies, higher corporate taxes, wage and pension increases for public sector employees, higher interest rates on provident funds, reservation of any type for most classes/ castes/ groups of people.
5. One economic policy option for West Bengal at present is to continue to same economic role of the State Government and therefore continue doing nothing more or new. Another variant of this status quo option is continue with the past while tinkering here and there with apparently pro-poor only measures like withdrawing State tax on LPG cylinders, increasing the number of people covered under Rs2/kg Rice distribution scheme, deferring the increase in taxi, auto, mini-bus and bus fares, crediting salaries of Government employees and teachers to their bank accounts on the first working day of each month. This kind of economic policy making would be simple and the consequences are well known. West Bengal economy will continue to grow so long as the Indian economy grows fast enough: if the economies of Bihar, Jharkhand & Oriya become fast developing West Bengal will have the benefit spill-over effects. Yes, the tax to GDP ratio will not improve from 4.5 % as ay present, debt burden will grow soon to such proportions to cause default and force emergency funding arrangements by the Government of India and the Reserve Bank of India. And, of course, West Bengal will witness a fall in her ranking in terms of economic growth rate, per capita income, percentage of population below the poverty line, state of education and health services. How does that future scenario matter to West Bengal now if such long-term objective or strategy or vision has not been of any interest among the elite and intellectuals advising the political rulers in the State? Status Quo economic policy by default is the most attractive option for West Bengal.
A Non-divine Government’s Economic Policy Framework
6. If, however, West Bengal happens to realizes that economic policy making is important, her elite / intellectual class and politicians must first get themselves convinced of the following:
(i) although the overall Indian economic policy remained the same for all States, many States have left West Bengal far behind in economic terms as well as in terms of quality of health and education services by just pursuing economic policies that were geared to certain economic strategy objectives of those States;
(ii) dreams, rhetoric by an all pervasive command and control State involvement at micro-economic level is doomed to failure as has happened in the past and the State role as a facilitator in economic development can only lead to serious economic policy making that has chances of succeeding;
(iii) economic policy making is neither easy nor anybody’s job and West Bengal has to deploy experienced expertise in applied macro-economics, public finance, industrial economics and micro-economics to formulate State-level economic policies designed to achieve certain long-term strategic economic goals: and
(iv) Generating a relevant and consistent set of economic policy options must be preceded by quickly evolving clarity on the long and medium term socio-economic goals and clearly articulated economic problems the State currently faces and their intensity. If the intensity of the problems is severe, the medium term goals may have to be moderated and instead of incremental changes in policy radical changes may have to be implemented.
7. For the purpose of the present discussion, we would assume that the medium term strategic economic goals of West Bengal would be something like this:
(a) To enable all citizens of West Bengal to increase their skills and productivity as well as gainfully deploy themselves in viable economic activities and create wealth for themselves so that they can progressively enjoy a better economic and social standard of living, beating the adverse impact due to inflation and slowdown in the Indian economy,
(b) To pursue such policies as would help maximize the flow and effective utilization of resources from the All-India public and private sector pool of investment and expertise into West Bengal,
(c) To get out of the habit of running State Revenue Budget deficits to a progressively rising Revenue Budget Surpluses to fund State-led development projects and thereby also contribute to (a) and (b) above,
(d) To quickly demolish the system of territorial and functional monopolies and rent-enjoying elements in the economic micro-structure and administrative machinery and bring in transparent, competitive forces at play, thereby reaping a few percentage point gain in State Domestic Product growth currently lost due to corruption, administrative delays, lower productivity, under-utilization of available productive capacity, stifling of innovations and large incidence of shirking, especially by people who are remunerated by the Government. This will in turn contribute to (a), (b) and (c) above.
8. We would now make a few illustration of the economic policy options consistent with the four medium term goals listed above in Para 5. Instead of using new nomenclature, we use the economists’ fashionable terminology and cliché.
Inclusive Growth and Exclusive Subsidies
9. Enhancing the economic power of all households would involve accelerating the rate of growth of State GDP per capita along with subsidies to the poorest (the tribal community in jungle mahal, the under-employed landless labor and the unemployed: (i) maximize utilization of the NREGA, (ii) allow and encourage farmers/ fishermen the access to demand from food/ vegetable/ fish malls in cities and urban areas, (iii) expedite the Central Government’s vegetable cluster centers coming up and (iv) do not apply exclusion principle to restrict farmers and fishermen from taking advantage food/ vegetable mall owned by foreign capital or domestic capital by using the blatant lie that these smalls affect income of small retailers small groceries/ vegetable or fish vendors just to protect the market power of politically supported small club of wholesalers. Finally, augment the production of rice and vegetables by increasing productivity per unit of land – the variety f seed that is about to cause a quantum jump in rice productivity is still eluding West Bengal.
10. Subsidies to the poor is fine, but equally important is to apply exclusion principle to tax households on their purchases beyond four LPG (liquefied petroleum gas) cylinders per year (this isn’t difficult to implement these days where LPG booking and delivery is computerized). Speeding up approvals to GAIL and such other agencies interested in supplying natural gas for cooking through network of pipelines to each kitchen at a costs lower than cost of LPG fuel. Yes, poor buying water is a non-inclusive growth: but exclusion from subsidized/ free water supply should apply to households in multi-stories buildings where a flat costs in excess of Rs. 30 lakhs or for washing cars and taxis. Water consumed can be recorded by meters and consumption beyond a monthly limit per household in such flats. Instead of not delaying the process of revising the fares of buses, taxis, mini-buses and auto-rickshaws to revise in response to change in petrol and diesel prices, agitate with the Government of India to raise the limit of standard deduction (zero tax) for income tax purposes linked to auto-fuel prices movements and hasten the pace of shifting to CNG (compressed natural gas) – using the new hydro-carbon policy of the Government of India.
Human Capital for Growth
11. Creating employment for the youth is fine but not for clerical-manual work in Government and municipalities. Fresh recruits by State Government/ municipality/ Zilla Parishad/ Panchyat service must necessarily have professional qualifications in citizen care administration and demonstrated proficiency in the use of MS Word and Excel. Make graduates turned out by Universities employable would be more productive than giving them state jobs or forcing new business units to recruit them locally through political goons. To rely on employment creation through private sector investments, bureaucratic/ administrative constraints on setting up of industrial units need to be removed, complete lists of land already acquired by Government lying idle in different locations need to in public domain as soon as possible and applications/ bids for lease on a transparent basis needs to be invited. Also, publish lists of land already leased to or acquired by private sector but not being used, giving the owners time limit beyond which such land would be taken over/ back for auction/ new leases (appropriate legislation may be necessary). Liberalize exit policy in respect of industrial establishments with less than 100 workmen so that such units can be down-sized / closed and assets become freely transferable. Department of labour need not wait till industrial disputes are brought up their notice: let the Government officers monitor labour relations in each unit on a continuous basis and be proactive enough to tackle brewing disputes before they become fully blown wars..
12. Encourage young entrepreneurs to run businesses like household plumbing, electrical and electronic repair services based on phone calls/ emails in cities, provided they have police verified service assistants with complete personal identification details. Make regulations on private medical doctor clinics to keep computerized record of all medical treatment service to each patient and issue computerized receipt for fees paid by the patients. For this purpose, require doctors’ private clinics to have a computer-trained patient services attendant and a professional nurse attendant. Have surprise visits and checks with roving squads. Make it mandatory for all pharmacy and drug stores to issue computer print-out receipts against all sales. All this will improve quality of medical service, professional employment and improve revenue collection.
Structural & Institutional Reforms
13. West Bengal needs all pervasive reforms in the market micro-structure to end economic crimes like levy collection by musclemen from business units/ shops, forced intermediation (dalal chakra) in hospital admissions, engagement of medical attendants by patients hospitalized, issue of ration cards, birth certificates, mutation certificates, registered property deeds, political party-sponsored locality-wise monopolies of building material supply and mobile vegetable vending on carts, levy collection by policemen from goods carrying trucks, etc. Inflicting of social costs by private auto-repairing shops, pavement hawkers, trucks awaiting on the road for custom and by shop-owners displaying ware on the pavement and roads must attract hefty financial penalties and cancellation of trade licenses: it is a pity that the roads broadened at public cost for smooth traffic flow are being occupied by stationery cars/ taxis/ trucks queuing for servicing, repair and painting, thereby narrowing the space available for pedestrians and movement of vehicles. Separate Road Clearing Force need to be put in place. This is all part of good economic governance that adds to efficiency gains and growth.
14. Merely repeating that West Bengal is the Gateway to Asian tiger economies is of no use. The State must negotiate with the Central Government to open up duty free trade with Bangladesh in cereals, coal, jute, tea, garments, vegetables, fish (not just hilsa), foot wear, drinking water bottles, etc. This would benefit the citizens of West Bengal more. Similar, State needs to take active interest in shaping trade agreements with Myanmar, Indonesia, Thailand and South Korea to maximize benefits to West Bengal.
Fiscal Prudence
15. A well thought out strategy to get out of the unsustainable debt trap and generating revenue budget surplus is the key to enhancing the State’s ability to pursue prudent economic policy. Immediate need is to target a slowdown in revenue expenditure together with higher revenue collection both by the State and all local self-governments. Only surplus revenue budgets can help the State government, municipalities, and panchayats to make necessary contribution to infrastructure projects and other development projects to get the benefit of attracting central matching grants and aid. State and municipalities have to improve their credit ratings to raise cheaper debts for funding credit worthy projects. Tax leakages are huge at present, partly because of the state-wide web of tax-evasion intermediary services collecting fees in black: this economic crime sector has to be totally crushed with the help of information technology, tracking cash transactions of such economic offence supporting intermediaries and day-to-day surveillance. Tax base needs to be broadened and subsidies need to be more targeted and direct. Industrial promotion may needs very little incentives if the industries do not have to bear costs of getting things cleared in Government and municipal offices. Government does not have a proper system of collection of annual land revenue (Khazna): the system needs immediate computerization, bills (separate for annual khazna installments and interest due on unpaid annual kahzna) may be sent to each household/ land owner and banks may be allowed to accept payments against these bills for direct credit to Government.
PPP Investment For Capacity Expansion
16. Now that the subsidized land acquisition support to private investment is being withdrawn/ minimized in the State and in the whole of India, PPP (public private partnerships) models to tap private sector investment would require fast track single window clearance mechanism and reduced politically convenient obligations on PPP projects immediately and more politically difficult relaxation on industrial exit laws after a while. The scope of the standard application of PPP model needs to widened to reduce the burden on the State exchequer: existing assets like Kolkata Zoo, other forest enclosures, Staid, vintage theater halls, swimming pools, libraries, river bank recreation enclosures and the like could attract private investment under PPP model for up-gradation, expansion and efficient, cost effective maintenance with flexibility in user charges for the rich on particular days of the week. Even in agriculture, PPP model with low equity and low interference from Government could help if contract farming and marketing of agricultural produce are also allowed.
Conclusion
17. Economic policy options appropriate for West Bengal at present and for the medium term future do not require arcane analysis. These options are well-known: what is required is the political will and administrative skills.
Friday, September 16, 2011
Sunday, September 20, 2009
Corporate Governance & Social Responsibilty
Corporate Social Responsibility & Corporate Governance
As An Organic Component of Business Activity
(Discussion Paper for SMT's Seminar on "Good governance and capacity
building for economic and social resurgence" in Kolkata)
By Dr. Basudeb Sen
(professional non-executive, independent director in companies)
Corporate Social Responsibility (CSR) and Corporate Governance (CG) have become the most fashionable subjects of discussion over the last two decades. Both these subjects have become important because of primarily one reason: the adverse impact of many companies/ corporations, businesses on the entire society or significant parts of the society. Although each and every business enterprise has not been found to produce adverse impact, the cases of large adverse impact have counted for the damaging image that all businesses have come to acquire. Businesses are mostly viewed as socially evil monster machines and the culprit responsible for societal damage is a group of evil persons called the management of businesses. That these evil people cause damage to the society is because they are very selfish operators motivated by maximizing profits for their businesses and for their own selves.
Are Businesses Socially Irresponsible?
2. Does this image of businesses a objective, realistic assessment? The correct answer is No. The image that is being painted of businesses is a false one. There are many instances of corporations, their rich owners and their rich managers making significant contributions to the society: just consider the innovations and inventions of Bill Gates or IBM or Kodak or Walt Disney. Who funds the many stadiums for games and universities for education? They are often rich businesses and their owners or managers and they include many banks which had to be bailed out by so-called tax-payers money or had to go bankrupt in many countries in the recent past. Consider the Bill Gates Foundation work across the world. The good, benevolent and charitable contribution of businesses and businessmen to the society are well known but regarded as a payment against their sin of becoming rich through exploiting others. On the other hand, their failures and competitive market practices are viewed as their anti-social, greedy pursuit of sin. There are many other institutions in the society whose positive contributions to the society are remembered but not their negative performances. For example, the corrupt behavior of politicians, the wasteful, inefficient, corrupt and repressive behavior of Government departments including government hospitals and the police, the noise polluting and violent behavior of religious organizations or the rallies and meetings organized by political parties, the privileges and luxury at taxpayers’ money enjoyed by ministers and politicians, etc do not count for social irresponsibility..
CSR Movement Rationale
3. So, given the irrational and biased yardstick of assessment of social institutions’ positive and negative contributions, the black image of businesses and corporations may survive for ever and will generate increasing scope for the proliferation of the movement of CSR and CG. The premises is that if CSR and CG movements are successful, then corporations and business enterprises will not be managed by evil operators without societal control mechanisms and therefore this will reduce the chances of businesses producing large adverse impact of their operations on the society. The underlying idea that businesses are socially useful organizations but since their managements tend to operate selfishly for maximizing profits thus generating considerable adverse impact on the society, makes it necessary to control these managements through CG processes and making them accountable for CSR.
Fashion of Joining CSR Club
4. If the above view, however fallacious, gains ground, what would businesses managements do? They would try to demonstrate that they have adopted good CG and very active on CSR. Only by demonstrating this they can improve their individual corporate or corporate sector image. So, the corporations and businesses in general nowadays are highly active CG and CSR oriented and take the help of academic institutions, social activists, government officials, politicians, analysts and rating agencies to create an environment that helps generate a general sense of relief that businesses are no more dangerously toxic as they were in the past. Amidst conferences on all of society’s various problems, there are conferences and seminars on CSR & CG, there are social accounting reports generated by big corporations (the smaller businesses like the transport operators who use more polluting engines and fuels as also accident-prone drivers apparently need not be accountable to the society), there are agencies publishing rankings of corporations on CSR and CG performance (the government departments, hospitals, police and political parties apparently need no such ranking) and there are plethora of awards and prizes for CSR and CG performance for corporations and their managements. Yet, there has been little relief to the society: companies continue to fail at the same rate as in the past with disastrous impact on stake holders, and the society continue to be plagued by environment pollution and degradation, deteriorating quality of life, poverty, unemployment, corruption, violence, malnutrition, high percentage of illiterate and uneducated population – all continue to exist.
Business Growth & Profits Sustains on Social Responsibilty
5. Irrespective of the image that big businesses enjoy in the society, irrespective of the elite activists’ of CG and CSR and irrespective of the fact none seem to care about who has to take the social responsibility for the wasteful fragmentation of cultivable land by agricultural businesses, the air pollution effects of make-shift restaurants on the street pavements, the accidents caused on busy roads that cannot be crossed without enormous risk, CG and CSR have become an organic component of big businesses for their survival and sustainability in the competitive market place: companies with effective CG and CSR are likely to produce more profits and survive longer periods. The bigger companies are increasing using the concepts of CG and CSR for enhancing their profits and building capabilities to sustain for longer and longer periods. Not that all big corporations have this motivation for CG and CSR. Some are providing lip service importance to CG and CSR. Some others just want to adopt the fashion of CG and CSR. Still others see advantage in getting mileage in terms of reputation and brand-building that would help them hide some of the socially-adverse impact of their operations or help increase the sales of their products. Some participate in the CG and CSR movement to get closer to the Government and get support. But only a few companies have realized that CG and CSR is an essential part of their competitive business planning and strategy: they belief that with proper CG and CSR, they can make greater profits and stay in business much longer, reducing the risks of survival. The companies motivated by this organic market-compatible discipline of CG and CSR derive all the other benefits as well even if they are not geared by such motivation: they enjoy sustainable reputation in the society, they see a greater demand for their goods and services, they get the awards and prizes, their brands get boost and so on. But the basic motivation behind CG and CSR in these few companies is to reduce costs, get higher sales and make higher profits on a sustained basis rather than purely for the short-term.
CG: Organic Part of Profit Driven Business
6. How do CG and CSR contribute to reducing costs, increasing sales and sustainable profits and growth? Let s first take the application of the concept of CG as an organic part of businesses. Corporate Governance is essentially a set of process or mechanisms that guide, direct and control the entire set of activities and the persons involved in such activities of acquisition and transformation of resources and time into valued added outputs: corporate governance processes and mechanisms ensures that the decisions and activities of a business entity are consistent with the corporate goals, its values and its obligations and commitments to the various providers of resources and services, the customers, the society at large and in harmony with its charter, the laws of the land and regulations. The corporate governance processes and mechanisms provides for regular monitoring and review of performance as also their accountability of all persons in an organization in accordance with the powers of decision-making they enjoy. As CG processes and mechanisms are documented, disseminated and implemented in a business enterprise, the costs may increase but the benefits increase more than proportionately in terms of prompt detection of and prompt and effective remedial measures against inefficiencies, negligence, corruption, violation of corporate standards and codes of ethical behavior, violation or transgression of laws and regulations, dissatisfaction of customers and failure to keep commitments to various stakeholders. Thus, the more effective the Corporate Governance mechanisms and processes, the greater is the likelihood of achieving the maximum potential profits from the business operations. Reduction in inefficiencies, negligence, and corruption contribute to savings in costs. Avoiding violation of laws and regulations reduces unproductive, avoidable costs of penalties. Avoiding deviations from corporate values, standards of ethical behavior protects image and reputation that builds brand equity, customer loyalty and employee loyalty. All this can contribute to the growth and sustainability of sales. The CG mechanisms also seek to ensure that the corporation is not lured by excessive greed that exposes the corporation to risks that may jeopardize the very existence of the corporation. Avoiding failures in keeping commitments to stakeholders helps the corporation to get the maximum cooperation and collaboration from its stakeholders. CG therefore is less of costs and more of benefits in terms of profits and their sustainability. Surviving in a competitive market place requires competitive edge derived through effective CG.
7. The above line of reasoning may be contested. One argument is that CG increases costs of procedures that are by themselves unproductive. This is true. But it is equally true, when the CG processes are externally imposed by regulators and the corporations do not apply their minds to introduce them in a cost efficient, logical manner, organically integrated to the corporations functioning, the costs of CG is higher and therefore effective CG can reduce the costs of CG itself. Second, effective CG brings in lot of cost savings and productivity gains. Another argument is that too much CG kills initiative, risk-taking and dynamism of managers. This again is true when CG is viewed as externally imposed. An organically integrated CG, however, generates incentives for initiative and risk-taking and promotes dynamism so long as they are consistent with corporate sustainability.
CSR: Organic Part of Profit Driven Business
8. Now, it would be proper to illustrate how organically integrated CSR is necessary for maximizing and sustaining profits in a competitive market place. All businesses come into existence for societal reasons: first, they serve to meet demand for different goods and services from various sections of the society. Second, there are certain legal and regulatory requirements imposed by the society and the businesses enterprises have to meet these requirements as well while trying to meet the demand for goods and services. And, finally, the business enterprises have to make adequate profits to survive and grow after meeting all cost obligations to various stakeholders in the society who provide various resources and services to the businesses. Businesses are therefore born with social responsibility. If any of the above three basic social responsibilities are not adhered to a business enterprise cannot hope to carryout its operations and survive, unless the environment is corrupt and there exists little competition in the market place. So, social responsibility is basic to the existence of business corporations. Unfortunately, businesses generally do not adequately assess the society’s emerging demands and needs and the emerging resource constraints to be able to align their operations and activities that make for sustainable profits and growth. If businesses were to assess the societal needs and constraints properly, they would continuously re-orient their strategies and operations. Let’s identify some of the societal needs: society wants eradication of poverty, malnutrition, inadequate health care, air pollution, noise pollution, inadequate education. Let us also consider some of the constraints faced by the society: drinking water shortages, food shortages, rapidly dwindling stock of exhaustible natural resources. Businesses can only make money if they cater to satisfying the above social needs and overcome or ease the constraints faced by the society. How would a corporation or business hope to generate sustainable profits and growth given these societal needs and concerns?
CSR for Cost Competitiveness
9. Many businesses consume lot of water and they have land with them where they can do rain harvesting. The company can therefore try to become net zero water consuming while producing and selling goods. Yes, rain harvesting may involve initially additional investment and costs, but over the long-term the company insulates itself from rising water costs as water becomes scarcer as is happening now. Company may produce something using fuels and processes that cause air pollution. The society is going to impose progressively greater restriction on such processes and impose penalties on carbon releases in to the air at rising rates. The company would do well to shift from such fuels to using wind-power, solar energy – this may be initially costly in terms of investments but will make the company more cost competitive in future as the prices of coal and petroleum oil rises and the carbon emission penalty rates rise. The company will have greater chance of sustaining growth and profits if it pursues these policies. Thus, profit and growth motives force social responsibility on businesses.
10. There are other ways through which social responsibility of businesses becomes vital to cost competitiveness. Companies always look for replacement of high cost, rapidly depleting mineral resources or newer processes that substantially reduce the consumption of such materials per unit of output. Paper manufacturers have resorted to paper-waste recycling, reduction in use of chemicals and energy consumption in paper manufacturing and promotion of forestation. All this reduces the long-run costs just because it contributes to sustainability of environment and ecology, besides promoting employment in social forestry. Cost competitiveness compulsions are dependent on businesses being socially responsible. Businesses that are not socially responsible cannot sustain their profits and growth, even if they make high short-run profits.
11. The processed foods and confectionary businesses sustain their profits and growth by contributing to agricultural productivity and sustainability. They often undertake various promotional measures to assist farmers and fruit growers as also those engaged in animal husbandry, dairy, fishing and poultry to increase their production and productivity so that they are assured of long-term availability of raw materials at low enough costs. It is the natural forward and backward economic linkages of business activities that forces social responsibility as the fundamental driver of business. Where it does not happen is because of the State or the elite in the society being irresponsible.
CSR for Developing Loyal Consumer Franchise & Competitiveness Through Differentiation
12. Hospitability and long-distance transport industries, in particular, hotels, restaurants and airlines, daily produce or purchase buys large volume of highly perishable food. But the entire production/ purchases are often not fully consumed or used up and thrown away. Socially responsible teenagers have shown enterprise and imagination to attract collaboration of these businesses to set up efficient systems of collection, transportation and distribution to reach food that would have been wasted and simply thrown into the gutters, to the poor and the needy in far away places. In the processes, the businesses earned goodwill publicity at virtually zero-cost. Businesses have organized more efficient, cost effective systems to reach education, education infrastructure and supporting inputs like stationery and school equipment to rural areas than the State machinery could do and created goodwill and loyalty among their future customers and thereby enhance the chances of sustainability of their future growth and profits.
A Real Life Example of CSR Integrated Business
13. Let us consider some real life examples in India. An Indian company has set up the largest digital rural infrastructure in the World that enables the farmers to obtain the ruling market prices in the mandis (markets) far away before he takes his produce to the mandis or sell to locally to a buyer near his farm gate. The company considers this infrastructure that it has built over several years at great cost as a “unique source of competitiveness” to its packaged foods business. The same digital network infrastructure is used to make available neem-based organic manures with superior efficacy in soil nutrition and crop management and thereby help spread the practice of chemical-free sustainable agricultural practices”. The company has declared: “In the coming years, stringent environmental regulators and civil society pressures will force businesses to integrate environmentally sustainable practices more comprehensively in their operations. The cost of compliance will go up significantly for those who pay scant attention to this vital area” of business planning and operations. The same company, thanks to its substantial investment in social farm forestry with high-yielding disease resistant clones of plants, this leading paper manufacturer is reached a stage where its “entire source of hardwood pulp is today derived from renewable social and farm forestry operation” that created millions of person-days of sustainable livelihood in tribal areas.
14. The company recognizes that “Sustainable manufacturing competitiveness will require aggressive strategy to reduce specific energy consumption”. Its hotel in Kolkata is the first hotel in the world to earn carbon credits. Over 30% of the total energy consumed by the company in its wide and large network of plants and offices is from renewable sources and carbon neutral fuels. This company is “the only company in the world, of its size and diversity, to achieve the 3 major global environmental milestones of being Carbon positive, water positive and solid waste recycling positive.
Source of Social Irresponsibility of Businesses
15. The reason that businesses appear to be and actually become socially irresponsible is because of socio-political milieu that encourages businesses to concentrate on short-term profits and restrict businesses from planning their operations on the basis of sustainability. That many businesses have ignored the organic link between their planning and operations for sustainability and the societal needs and concerns that give rise to business opportunities, is only to a small extent due to the short-term profit-orientation of the businesses but largely because of the unimaginative ways the State and the elite of the society have tried to constrain businesses to operate in their own and hence the society’s longer-term interest. The emphasis has been to assume that the interests of businesses are not consistent with those of the society and businesses must be controlled externally by the State or Social Activists to make businesses socially responsible. The State has always been trying to limit private sector initiative in education and make education more Government-dependent and in the process raise more taxes to fund government initiative in education and literacy as also provide some incentives to the private sector to contribute to the spread of education as an activity not organically linked to business operations. The elite and social activists, especially of the so-called leftist varieties, have sought to shift their own social responsibility on to the businesses and enjoy participation in the business-funded social activities.
16. The unimaginative and artificial approach to societal dealing with businesses has encouraged businesses to be socially irresponsible. Consider for example the case of road transport in cities. The State has either run its own large fleet of public transport at great losses in the name of providing cheap transportation facilities to the city’s common denizens or allowed small operators to run their fleets with tariff controls and infeasible quality controls. This has encouraged private ownership of personal automobiles for travel and rapid growth of motorbikes and cars in the cities leading the great social costs in terms of road congestion, slower movement of traffic, air and noise pollution, loss of life and limbs through accidents on the road and corruption among traffic police. Is this a socially desirable situation? Or, consider the many individual physicians attending to patients in their residence-cum-heath clinics without adequate space to handle large crowds of sick people including those afflicted by highly contagious diseases, causing lot of health hazards and risks to the permanent residents in the localities these doctors live. Or, consider allowing businesses to set up retail shops along the streets without adequate free passage and parking space within the shops premises, resulting in private use of public roads and pavements for private business use. If the leaders of the State and the social elite encourage the growth of such socially irresponsible small businesses, the credibility of their motivation to lead CSR for big businesses would remain in doubt even if the double standards of the leaders are not noticed by the common people attracted by newsworthy struggle against big corporations reported in the media. Social Responsibility
17. Consider suggestions of some genuine social activists: they would like cigarette manufacturers to be socially responsible and hence set up cancer hospitals. This is the height of social irresponsibility. One does not care to stop cultivation of tobacco at least with a phased time-bound plan, nor does one ban manufacturing and selling of smoking sticks. One does not ban smoking except in airplanes, offices, restaurants, theaters, etc. They want the cigarette smokers who contributes to 10% of the sticks smokes in India to pay for the cancer hospitals that would treat cancer patients who were never a smoker or user of tobacco, or who were from the bidi-smoking community accounting for consuming 90% of the tobacco-based stick smoking, or whose chewing consumed much more tobacco than the cigarette-smokers. Such inconsistencies weaken the social justification of existence of the leadership of the State and the social elite. One day hopefully, the world will see the last user of tobacco: but much before that lot of damage would have been done socially irresponsible behavior of social activist elite and the managers of the State..
18. Social responsibility should be the basic justification for any activity or any person or any entity to operate within the society – whether in the field of business or religion or politics or philanthropy or art or culture or sports. Unless this basic attribute is cultivated in the society in every part of life from home, to club, to government, to politics, to recreation, to public service, emphasis on mere CSR will not change the society in a significant manner, notwithstanding the fact that some businesses will do outstanding work reflecting the high degree of integration of CSR in their business planning and operations. Corporate leaders should take up their personal social responsibility to campaign for socially responsible behavior on the part of all non-business entities, rather than merely turning corporations into socially responsible entities. One company has identified two important drivers that will help create a new paradigm of development through creation of markets for socially responsible sustainability practices: a. “the imperative need to align policies and regulations to encourage the conduct of business in a manner that results in achievement of a positive carbon footprint and also supports the creation of social capital” and b. “civil society, by exercising their consumer franchise in favour of sustainable enterprises, can unleash a powerful force of market incentives to reward sustainable practices.”
Another Illustration of Contributing to Sustainability
19. It is well recognized that corruption, bribery, leakages in Government expenditure, money laundering, terrorist funding, generation of fake currency, false citizen-ship, bogus ration cards are some of the societal diseases that needs to be eradicated for sustainability of the society. These concerns are being addresses in some way or the other by various agencies. But can businesses contribute towards this in a commercially sustainable way. It can by using imagination, vision and use of modern technology. If all adults and high school-going children are obligated to open an Universal Financial Access Account with an unique number and these account numbers are referenced/ linked to all bank accounts a person/ citizen may have as also the Unique Identity Number that the citizens are going to have under the National Project that has been undertaken it will be great move forward. When each person uses a mobile phone does all receipt and payment transaction using the mobile phone whose number is linked to all his bank accounts and the Unique Identity Number, there would virtually be need for any cash/ currency for usage, provided apart from individuals, all shops, establishments, firms, companies, trusts, clubs, schools etc are also required to open the Universal Financial Access Account and have their own Unique Identity Number. It is possible to think of large commercial banks in collaboration with telecom companies to capture this concept in their business model to make a sustainable business growth possible while addressing the social concerns mentioned at the beginning of this paragraph. The mobile phones for Universal Financial Access may be given free to the poor people everywhere and especially in un-banked and far flung areas. by banks and telecom companies because of the substantial rise in deposits without the need to have branches and ATMs near the doorsteps of every citizen. The audit –trails can easily spot suspicious movement of money for terrorism funding, bribery and corruption. The poor people who work under the National Rural Employment Guarantee Scheme would then get paid directly in their Universal Financial Access Bank Accounts instead of the current system of cash disbursements where a part of the money is siphoned away by corrupt people involved in the administration of the scheme. The behavior of transactions will help each person to be rated for credit worthiness by independent reputation bureaus. Even the procedure of giving votes may be adjusted to link the Unique Identity Card Numbers, the Universal Access Account Numbers and Unique Identity Devices so that false voting becomes impossible and no one is forced to abstain from voting in an election. This concept therefore enables some banks and telecom companies to integrate corporate social responsibility in their business growth and sustainability models. For details on this concept I would like to refer those interested in this to http://www.ufa-india.org .
Social Responsibility Is Universally Applicable
20. What is relevant to businesses is equally relevant to non-business entities – political parties, civil society groups, sports organizations, educational institutions, government departments and agencies, municipalities, local clubs, families and individuals. The society needs to make everyone and every entity socially responsible instead of everyone asking everyone else to become socially responsible. Just to illustrate a few cases consider the following. Political parties come into existence for the commonweal – they need to organically integrate their plan and operations to social responsibility. Wild-cat strikes, frequent strikes, rallies in the heart of the cities (instead of in far-flung areas) and use of violence are not consistent with social responsibility, especially when alternative forms of communications like video-conferencing, television network and internet network are available. Rallies consume more fuel and create inconvenience to the people at large: strikes and bandhs reduce fuel consumption but also lead to production and income losses, besides causing inconvenience to people in urgent need to travel.
Creating panic and unfounded fears is easy but is far from social responsibility of media and civil society: the responsibility of disseminating correct information and influencing public opinion on issues of social concern can be carried out without creating panic. Religious activities that create traffic congestion, closure of certain roads to traffic movement or produces noise pollution cannot be said to be socially responsible acts. The governments that allow buses to use roads, pedestrian walkways and petrol pumps as bus terminus / depots parking cannot be said to be socially responsible. The practioners of the noble profession of healthcare carrying on health care of patients forced to use public pavements and roads as waiting and reception space for the private clinics is not a socially responsible conduct. Not cleaning roads, not removing garbage lying on the streets and allowing animals stray on the roads is not a socially responsible act of municipalities. Educational institutions that encourage use of the public roads for parking of students’ pick-up cars and buses cannot be said to be socially responsible. Hospitals that do not keep their premises clean of dirt and refuge and allow anti-social elements free passages are far from being socially responsible. Educational institutions that operate with inadequate infrastructure and teaching manpower in place are not socially responsible. Government departments that spend a lot on employee benefits and welfare but delivers inefficient and delayed service to the people are far from being socially responsible. While these are not businesses or big businesses, these create the environment for corporate social responsibility.
The society cannot hope to progress with islands of responsible corporate behavior in a milieu of social irresponsibility flourishing everywhere else.
Concluding Remarks
21. Corporate Social Responsibility is not corporate philanthropy: spending shareholder money as donations or grants for social causes including funding of election expenses may be good activities. Corporate Governance warrants that such grants or donations are made with the approval of the shareholders. Such grants and donations may add to goodwill and may even bring in some awards and image enhancement. Besides, all corporations may not make large enough profits to get into philanthropic endeavor. Those who distribute large profits have the choice of leaving philanthropic acts to individual shareholders rather than use their money for grants and donations. Similarly, using corporate resources like manpower for social purposes like blood donation camps or flood relief are acts of philanthropy but not acts emerging out of the obligation to conduct activities in a socially responsible way. Operating in a socially responsible way demands that the resources drawn from the social pool are used and deployed most efficiently to meet the various needs of the society on a sustainable basis. A business entity’s social responsibility performance depends on how consciously it integrates social responsibility in its planning and execution of its operations. And, this performance is measured in terms of the impact of innovations that it makes to use more of the surplus human and abundantly available renewable resources, to enhance the skills of human resources for sustainable livelihood, to become water positive, to enhance solid waste recycling, to reduce consumption of fast depleting natural resources, to reduce greenhouse emissions, to reduce air, noise and water pollution, to promote similar social responsibility in activities that are linked backward and forward to the activities of the business and to become a source of inspiration to other businesses and non-business entities to integrate social responsibility in their planning and operations.
_________________________________________________
Notes: 1. Views presented in this paper are purely personal.
2. Source of all quotations in this article is the Speech by the Chairman, Shri Y. C. Deveshwar at the Ninety-Eighth Annual General Meeting of ITC Limited on 24th July 2009,
http://www.itcportal.com/sets/chairman_frameset.htm
3. On Universal Financial Access, visit http://www.ufa-india.org/forum/topics/inclusive-growth-with-ufa-bank , http://www.ufa-india.org/forum/topics/ufabac-killer-application , http://www.ufa-india.org/forum/topics/ufabac-national-pension-scheme
As An Organic Component of Business Activity
(Discussion Paper for SMT's Seminar on "Good governance and capacity
building for economic and social resurgence" in Kolkata)
By Dr. Basudeb Sen
(professional non-executive, independent director in companies)
Corporate Social Responsibility (CSR) and Corporate Governance (CG) have become the most fashionable subjects of discussion over the last two decades. Both these subjects have become important because of primarily one reason: the adverse impact of many companies/ corporations, businesses on the entire society or significant parts of the society. Although each and every business enterprise has not been found to produce adverse impact, the cases of large adverse impact have counted for the damaging image that all businesses have come to acquire. Businesses are mostly viewed as socially evil monster machines and the culprit responsible for societal damage is a group of evil persons called the management of businesses. That these evil people cause damage to the society is because they are very selfish operators motivated by maximizing profits for their businesses and for their own selves.
Are Businesses Socially Irresponsible?
2. Does this image of businesses a objective, realistic assessment? The correct answer is No. The image that is being painted of businesses is a false one. There are many instances of corporations, their rich owners and their rich managers making significant contributions to the society: just consider the innovations and inventions of Bill Gates or IBM or Kodak or Walt Disney. Who funds the many stadiums for games and universities for education? They are often rich businesses and their owners or managers and they include many banks which had to be bailed out by so-called tax-payers money or had to go bankrupt in many countries in the recent past. Consider the Bill Gates Foundation work across the world. The good, benevolent and charitable contribution of businesses and businessmen to the society are well known but regarded as a payment against their sin of becoming rich through exploiting others. On the other hand, their failures and competitive market practices are viewed as their anti-social, greedy pursuit of sin. There are many other institutions in the society whose positive contributions to the society are remembered but not their negative performances. For example, the corrupt behavior of politicians, the wasteful, inefficient, corrupt and repressive behavior of Government departments including government hospitals and the police, the noise polluting and violent behavior of religious organizations or the rallies and meetings organized by political parties, the privileges and luxury at taxpayers’ money enjoyed by ministers and politicians, etc do not count for social irresponsibility..
CSR Movement Rationale
3. So, given the irrational and biased yardstick of assessment of social institutions’ positive and negative contributions, the black image of businesses and corporations may survive for ever and will generate increasing scope for the proliferation of the movement of CSR and CG. The premises is that if CSR and CG movements are successful, then corporations and business enterprises will not be managed by evil operators without societal control mechanisms and therefore this will reduce the chances of businesses producing large adverse impact of their operations on the society. The underlying idea that businesses are socially useful organizations but since their managements tend to operate selfishly for maximizing profits thus generating considerable adverse impact on the society, makes it necessary to control these managements through CG processes and making them accountable for CSR.
Fashion of Joining CSR Club
4. If the above view, however fallacious, gains ground, what would businesses managements do? They would try to demonstrate that they have adopted good CG and very active on CSR. Only by demonstrating this they can improve their individual corporate or corporate sector image. So, the corporations and businesses in general nowadays are highly active CG and CSR oriented and take the help of academic institutions, social activists, government officials, politicians, analysts and rating agencies to create an environment that helps generate a general sense of relief that businesses are no more dangerously toxic as they were in the past. Amidst conferences on all of society’s various problems, there are conferences and seminars on CSR & CG, there are social accounting reports generated by big corporations (the smaller businesses like the transport operators who use more polluting engines and fuels as also accident-prone drivers apparently need not be accountable to the society), there are agencies publishing rankings of corporations on CSR and CG performance (the government departments, hospitals, police and political parties apparently need no such ranking) and there are plethora of awards and prizes for CSR and CG performance for corporations and their managements. Yet, there has been little relief to the society: companies continue to fail at the same rate as in the past with disastrous impact on stake holders, and the society continue to be plagued by environment pollution and degradation, deteriorating quality of life, poverty, unemployment, corruption, violence, malnutrition, high percentage of illiterate and uneducated population – all continue to exist.
Business Growth & Profits Sustains on Social Responsibilty
5. Irrespective of the image that big businesses enjoy in the society, irrespective of the elite activists’ of CG and CSR and irrespective of the fact none seem to care about who has to take the social responsibility for the wasteful fragmentation of cultivable land by agricultural businesses, the air pollution effects of make-shift restaurants on the street pavements, the accidents caused on busy roads that cannot be crossed without enormous risk, CG and CSR have become an organic component of big businesses for their survival and sustainability in the competitive market place: companies with effective CG and CSR are likely to produce more profits and survive longer periods. The bigger companies are increasing using the concepts of CG and CSR for enhancing their profits and building capabilities to sustain for longer and longer periods. Not that all big corporations have this motivation for CG and CSR. Some are providing lip service importance to CG and CSR. Some others just want to adopt the fashion of CG and CSR. Still others see advantage in getting mileage in terms of reputation and brand-building that would help them hide some of the socially-adverse impact of their operations or help increase the sales of their products. Some participate in the CG and CSR movement to get closer to the Government and get support. But only a few companies have realized that CG and CSR is an essential part of their competitive business planning and strategy: they belief that with proper CG and CSR, they can make greater profits and stay in business much longer, reducing the risks of survival. The companies motivated by this organic market-compatible discipline of CG and CSR derive all the other benefits as well even if they are not geared by such motivation: they enjoy sustainable reputation in the society, they see a greater demand for their goods and services, they get the awards and prizes, their brands get boost and so on. But the basic motivation behind CG and CSR in these few companies is to reduce costs, get higher sales and make higher profits on a sustained basis rather than purely for the short-term.
CG: Organic Part of Profit Driven Business
6. How do CG and CSR contribute to reducing costs, increasing sales and sustainable profits and growth? Let s first take the application of the concept of CG as an organic part of businesses. Corporate Governance is essentially a set of process or mechanisms that guide, direct and control the entire set of activities and the persons involved in such activities of acquisition and transformation of resources and time into valued added outputs: corporate governance processes and mechanisms ensures that the decisions and activities of a business entity are consistent with the corporate goals, its values and its obligations and commitments to the various providers of resources and services, the customers, the society at large and in harmony with its charter, the laws of the land and regulations. The corporate governance processes and mechanisms provides for regular monitoring and review of performance as also their accountability of all persons in an organization in accordance with the powers of decision-making they enjoy. As CG processes and mechanisms are documented, disseminated and implemented in a business enterprise, the costs may increase but the benefits increase more than proportionately in terms of prompt detection of and prompt and effective remedial measures against inefficiencies, negligence, corruption, violation of corporate standards and codes of ethical behavior, violation or transgression of laws and regulations, dissatisfaction of customers and failure to keep commitments to various stakeholders. Thus, the more effective the Corporate Governance mechanisms and processes, the greater is the likelihood of achieving the maximum potential profits from the business operations. Reduction in inefficiencies, negligence, and corruption contribute to savings in costs. Avoiding violation of laws and regulations reduces unproductive, avoidable costs of penalties. Avoiding deviations from corporate values, standards of ethical behavior protects image and reputation that builds brand equity, customer loyalty and employee loyalty. All this can contribute to the growth and sustainability of sales. The CG mechanisms also seek to ensure that the corporation is not lured by excessive greed that exposes the corporation to risks that may jeopardize the very existence of the corporation. Avoiding failures in keeping commitments to stakeholders helps the corporation to get the maximum cooperation and collaboration from its stakeholders. CG therefore is less of costs and more of benefits in terms of profits and their sustainability. Surviving in a competitive market place requires competitive edge derived through effective CG.
7. The above line of reasoning may be contested. One argument is that CG increases costs of procedures that are by themselves unproductive. This is true. But it is equally true, when the CG processes are externally imposed by regulators and the corporations do not apply their minds to introduce them in a cost efficient, logical manner, organically integrated to the corporations functioning, the costs of CG is higher and therefore effective CG can reduce the costs of CG itself. Second, effective CG brings in lot of cost savings and productivity gains. Another argument is that too much CG kills initiative, risk-taking and dynamism of managers. This again is true when CG is viewed as externally imposed. An organically integrated CG, however, generates incentives for initiative and risk-taking and promotes dynamism so long as they are consistent with corporate sustainability.
CSR: Organic Part of Profit Driven Business
8. Now, it would be proper to illustrate how organically integrated CSR is necessary for maximizing and sustaining profits in a competitive market place. All businesses come into existence for societal reasons: first, they serve to meet demand for different goods and services from various sections of the society. Second, there are certain legal and regulatory requirements imposed by the society and the businesses enterprises have to meet these requirements as well while trying to meet the demand for goods and services. And, finally, the business enterprises have to make adequate profits to survive and grow after meeting all cost obligations to various stakeholders in the society who provide various resources and services to the businesses. Businesses are therefore born with social responsibility. If any of the above three basic social responsibilities are not adhered to a business enterprise cannot hope to carryout its operations and survive, unless the environment is corrupt and there exists little competition in the market place. So, social responsibility is basic to the existence of business corporations. Unfortunately, businesses generally do not adequately assess the society’s emerging demands and needs and the emerging resource constraints to be able to align their operations and activities that make for sustainable profits and growth. If businesses were to assess the societal needs and constraints properly, they would continuously re-orient their strategies and operations. Let’s identify some of the societal needs: society wants eradication of poverty, malnutrition, inadequate health care, air pollution, noise pollution, inadequate education. Let us also consider some of the constraints faced by the society: drinking water shortages, food shortages, rapidly dwindling stock of exhaustible natural resources. Businesses can only make money if they cater to satisfying the above social needs and overcome or ease the constraints faced by the society. How would a corporation or business hope to generate sustainable profits and growth given these societal needs and concerns?
CSR for Cost Competitiveness
9. Many businesses consume lot of water and they have land with them where they can do rain harvesting. The company can therefore try to become net zero water consuming while producing and selling goods. Yes, rain harvesting may involve initially additional investment and costs, but over the long-term the company insulates itself from rising water costs as water becomes scarcer as is happening now. Company may produce something using fuels and processes that cause air pollution. The society is going to impose progressively greater restriction on such processes and impose penalties on carbon releases in to the air at rising rates. The company would do well to shift from such fuels to using wind-power, solar energy – this may be initially costly in terms of investments but will make the company more cost competitive in future as the prices of coal and petroleum oil rises and the carbon emission penalty rates rise. The company will have greater chance of sustaining growth and profits if it pursues these policies. Thus, profit and growth motives force social responsibility on businesses.
10. There are other ways through which social responsibility of businesses becomes vital to cost competitiveness. Companies always look for replacement of high cost, rapidly depleting mineral resources or newer processes that substantially reduce the consumption of such materials per unit of output. Paper manufacturers have resorted to paper-waste recycling, reduction in use of chemicals and energy consumption in paper manufacturing and promotion of forestation. All this reduces the long-run costs just because it contributes to sustainability of environment and ecology, besides promoting employment in social forestry. Cost competitiveness compulsions are dependent on businesses being socially responsible. Businesses that are not socially responsible cannot sustain their profits and growth, even if they make high short-run profits.
11. The processed foods and confectionary businesses sustain their profits and growth by contributing to agricultural productivity and sustainability. They often undertake various promotional measures to assist farmers and fruit growers as also those engaged in animal husbandry, dairy, fishing and poultry to increase their production and productivity so that they are assured of long-term availability of raw materials at low enough costs. It is the natural forward and backward economic linkages of business activities that forces social responsibility as the fundamental driver of business. Where it does not happen is because of the State or the elite in the society being irresponsible.
CSR for Developing Loyal Consumer Franchise & Competitiveness Through Differentiation
12. Hospitability and long-distance transport industries, in particular, hotels, restaurants and airlines, daily produce or purchase buys large volume of highly perishable food. But the entire production/ purchases are often not fully consumed or used up and thrown away. Socially responsible teenagers have shown enterprise and imagination to attract collaboration of these businesses to set up efficient systems of collection, transportation and distribution to reach food that would have been wasted and simply thrown into the gutters, to the poor and the needy in far away places. In the processes, the businesses earned goodwill publicity at virtually zero-cost. Businesses have organized more efficient, cost effective systems to reach education, education infrastructure and supporting inputs like stationery and school equipment to rural areas than the State machinery could do and created goodwill and loyalty among their future customers and thereby enhance the chances of sustainability of their future growth and profits.
A Real Life Example of CSR Integrated Business
13. Let us consider some real life examples in India. An Indian company has set up the largest digital rural infrastructure in the World that enables the farmers to obtain the ruling market prices in the mandis (markets) far away before he takes his produce to the mandis or sell to locally to a buyer near his farm gate. The company considers this infrastructure that it has built over several years at great cost as a “unique source of competitiveness” to its packaged foods business. The same digital network infrastructure is used to make available neem-based organic manures with superior efficacy in soil nutrition and crop management and thereby help spread the practice of chemical-free sustainable agricultural practices”. The company has declared: “In the coming years, stringent environmental regulators and civil society pressures will force businesses to integrate environmentally sustainable practices more comprehensively in their operations. The cost of compliance will go up significantly for those who pay scant attention to this vital area” of business planning and operations. The same company, thanks to its substantial investment in social farm forestry with high-yielding disease resistant clones of plants, this leading paper manufacturer is reached a stage where its “entire source of hardwood pulp is today derived from renewable social and farm forestry operation” that created millions of person-days of sustainable livelihood in tribal areas.
14. The company recognizes that “Sustainable manufacturing competitiveness will require aggressive strategy to reduce specific energy consumption”. Its hotel in Kolkata is the first hotel in the world to earn carbon credits. Over 30% of the total energy consumed by the company in its wide and large network of plants and offices is from renewable sources and carbon neutral fuels. This company is “the only company in the world, of its size and diversity, to achieve the 3 major global environmental milestones of being Carbon positive, water positive and solid waste recycling positive.
Source of Social Irresponsibility of Businesses
15. The reason that businesses appear to be and actually become socially irresponsible is because of socio-political milieu that encourages businesses to concentrate on short-term profits and restrict businesses from planning their operations on the basis of sustainability. That many businesses have ignored the organic link between their planning and operations for sustainability and the societal needs and concerns that give rise to business opportunities, is only to a small extent due to the short-term profit-orientation of the businesses but largely because of the unimaginative ways the State and the elite of the society have tried to constrain businesses to operate in their own and hence the society’s longer-term interest. The emphasis has been to assume that the interests of businesses are not consistent with those of the society and businesses must be controlled externally by the State or Social Activists to make businesses socially responsible. The State has always been trying to limit private sector initiative in education and make education more Government-dependent and in the process raise more taxes to fund government initiative in education and literacy as also provide some incentives to the private sector to contribute to the spread of education as an activity not organically linked to business operations. The elite and social activists, especially of the so-called leftist varieties, have sought to shift their own social responsibility on to the businesses and enjoy participation in the business-funded social activities.
16. The unimaginative and artificial approach to societal dealing with businesses has encouraged businesses to be socially irresponsible. Consider for example the case of road transport in cities. The State has either run its own large fleet of public transport at great losses in the name of providing cheap transportation facilities to the city’s common denizens or allowed small operators to run their fleets with tariff controls and infeasible quality controls. This has encouraged private ownership of personal automobiles for travel and rapid growth of motorbikes and cars in the cities leading the great social costs in terms of road congestion, slower movement of traffic, air and noise pollution, loss of life and limbs through accidents on the road and corruption among traffic police. Is this a socially desirable situation? Or, consider the many individual physicians attending to patients in their residence-cum-heath clinics without adequate space to handle large crowds of sick people including those afflicted by highly contagious diseases, causing lot of health hazards and risks to the permanent residents in the localities these doctors live. Or, consider allowing businesses to set up retail shops along the streets without adequate free passage and parking space within the shops premises, resulting in private use of public roads and pavements for private business use. If the leaders of the State and the social elite encourage the growth of such socially irresponsible small businesses, the credibility of their motivation to lead CSR for big businesses would remain in doubt even if the double standards of the leaders are not noticed by the common people attracted by newsworthy struggle against big corporations reported in the media. Social Responsibility
17. Consider suggestions of some genuine social activists: they would like cigarette manufacturers to be socially responsible and hence set up cancer hospitals. This is the height of social irresponsibility. One does not care to stop cultivation of tobacco at least with a phased time-bound plan, nor does one ban manufacturing and selling of smoking sticks. One does not ban smoking except in airplanes, offices, restaurants, theaters, etc. They want the cigarette smokers who contributes to 10% of the sticks smokes in India to pay for the cancer hospitals that would treat cancer patients who were never a smoker or user of tobacco, or who were from the bidi-smoking community accounting for consuming 90% of the tobacco-based stick smoking, or whose chewing consumed much more tobacco than the cigarette-smokers. Such inconsistencies weaken the social justification of existence of the leadership of the State and the social elite. One day hopefully, the world will see the last user of tobacco: but much before that lot of damage would have been done socially irresponsible behavior of social activist elite and the managers of the State..
18. Social responsibility should be the basic justification for any activity or any person or any entity to operate within the society – whether in the field of business or religion or politics or philanthropy or art or culture or sports. Unless this basic attribute is cultivated in the society in every part of life from home, to club, to government, to politics, to recreation, to public service, emphasis on mere CSR will not change the society in a significant manner, notwithstanding the fact that some businesses will do outstanding work reflecting the high degree of integration of CSR in their business planning and operations. Corporate leaders should take up their personal social responsibility to campaign for socially responsible behavior on the part of all non-business entities, rather than merely turning corporations into socially responsible entities. One company has identified two important drivers that will help create a new paradigm of development through creation of markets for socially responsible sustainability practices: a. “the imperative need to align policies and regulations to encourage the conduct of business in a manner that results in achievement of a positive carbon footprint and also supports the creation of social capital” and b. “civil society, by exercising their consumer franchise in favour of sustainable enterprises, can unleash a powerful force of market incentives to reward sustainable practices.”
Another Illustration of Contributing to Sustainability
19. It is well recognized that corruption, bribery, leakages in Government expenditure, money laundering, terrorist funding, generation of fake currency, false citizen-ship, bogus ration cards are some of the societal diseases that needs to be eradicated for sustainability of the society. These concerns are being addresses in some way or the other by various agencies. But can businesses contribute towards this in a commercially sustainable way. It can by using imagination, vision and use of modern technology. If all adults and high school-going children are obligated to open an Universal Financial Access Account with an unique number and these account numbers are referenced/ linked to all bank accounts a person/ citizen may have as also the Unique Identity Number that the citizens are going to have under the National Project that has been undertaken it will be great move forward. When each person uses a mobile phone does all receipt and payment transaction using the mobile phone whose number is linked to all his bank accounts and the Unique Identity Number, there would virtually be need for any cash/ currency for usage, provided apart from individuals, all shops, establishments, firms, companies, trusts, clubs, schools etc are also required to open the Universal Financial Access Account and have their own Unique Identity Number. It is possible to think of large commercial banks in collaboration with telecom companies to capture this concept in their business model to make a sustainable business growth possible while addressing the social concerns mentioned at the beginning of this paragraph. The mobile phones for Universal Financial Access may be given free to the poor people everywhere and especially in un-banked and far flung areas. by banks and telecom companies because of the substantial rise in deposits without the need to have branches and ATMs near the doorsteps of every citizen. The audit –trails can easily spot suspicious movement of money for terrorism funding, bribery and corruption. The poor people who work under the National Rural Employment Guarantee Scheme would then get paid directly in their Universal Financial Access Bank Accounts instead of the current system of cash disbursements where a part of the money is siphoned away by corrupt people involved in the administration of the scheme. The behavior of transactions will help each person to be rated for credit worthiness by independent reputation bureaus. Even the procedure of giving votes may be adjusted to link the Unique Identity Card Numbers, the Universal Access Account Numbers and Unique Identity Devices so that false voting becomes impossible and no one is forced to abstain from voting in an election. This concept therefore enables some banks and telecom companies to integrate corporate social responsibility in their business growth and sustainability models. For details on this concept I would like to refer those interested in this to http://www.ufa-india.org .
Social Responsibility Is Universally Applicable
20. What is relevant to businesses is equally relevant to non-business entities – political parties, civil society groups, sports organizations, educational institutions, government departments and agencies, municipalities, local clubs, families and individuals. The society needs to make everyone and every entity socially responsible instead of everyone asking everyone else to become socially responsible. Just to illustrate a few cases consider the following. Political parties come into existence for the commonweal – they need to organically integrate their plan and operations to social responsibility. Wild-cat strikes, frequent strikes, rallies in the heart of the cities (instead of in far-flung areas) and use of violence are not consistent with social responsibility, especially when alternative forms of communications like video-conferencing, television network and internet network are available. Rallies consume more fuel and create inconvenience to the people at large: strikes and bandhs reduce fuel consumption but also lead to production and income losses, besides causing inconvenience to people in urgent need to travel.
Creating panic and unfounded fears is easy but is far from social responsibility of media and civil society: the responsibility of disseminating correct information and influencing public opinion on issues of social concern can be carried out without creating panic. Religious activities that create traffic congestion, closure of certain roads to traffic movement or produces noise pollution cannot be said to be socially responsible acts. The governments that allow buses to use roads, pedestrian walkways and petrol pumps as bus terminus / depots parking cannot be said to be socially responsible. The practioners of the noble profession of healthcare carrying on health care of patients forced to use public pavements and roads as waiting and reception space for the private clinics is not a socially responsible conduct. Not cleaning roads, not removing garbage lying on the streets and allowing animals stray on the roads is not a socially responsible act of municipalities. Educational institutions that encourage use of the public roads for parking of students’ pick-up cars and buses cannot be said to be socially responsible. Hospitals that do not keep their premises clean of dirt and refuge and allow anti-social elements free passages are far from being socially responsible. Educational institutions that operate with inadequate infrastructure and teaching manpower in place are not socially responsible. Government departments that spend a lot on employee benefits and welfare but delivers inefficient and delayed service to the people are far from being socially responsible. While these are not businesses or big businesses, these create the environment for corporate social responsibility.
The society cannot hope to progress with islands of responsible corporate behavior in a milieu of social irresponsibility flourishing everywhere else.
Concluding Remarks
21. Corporate Social Responsibility is not corporate philanthropy: spending shareholder money as donations or grants for social causes including funding of election expenses may be good activities. Corporate Governance warrants that such grants or donations are made with the approval of the shareholders. Such grants and donations may add to goodwill and may even bring in some awards and image enhancement. Besides, all corporations may not make large enough profits to get into philanthropic endeavor. Those who distribute large profits have the choice of leaving philanthropic acts to individual shareholders rather than use their money for grants and donations. Similarly, using corporate resources like manpower for social purposes like blood donation camps or flood relief are acts of philanthropy but not acts emerging out of the obligation to conduct activities in a socially responsible way. Operating in a socially responsible way demands that the resources drawn from the social pool are used and deployed most efficiently to meet the various needs of the society on a sustainable basis. A business entity’s social responsibility performance depends on how consciously it integrates social responsibility in its planning and execution of its operations. And, this performance is measured in terms of the impact of innovations that it makes to use more of the surplus human and abundantly available renewable resources, to enhance the skills of human resources for sustainable livelihood, to become water positive, to enhance solid waste recycling, to reduce consumption of fast depleting natural resources, to reduce greenhouse emissions, to reduce air, noise and water pollution, to promote similar social responsibility in activities that are linked backward and forward to the activities of the business and to become a source of inspiration to other businesses and non-business entities to integrate social responsibility in their planning and operations.
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Notes: 1. Views presented in this paper are purely personal.
2. Source of all quotations in this article is the Speech by the Chairman, Shri Y. C. Deveshwar at the Ninety-Eighth Annual General Meeting of ITC Limited on 24th July 2009,
http://www.itcportal.com/sets/chairman_frameset.htm
3. On Universal Financial Access, visit http://www.ufa-india.org/forum/topics/inclusive-growth-with-ufa-bank , http://www.ufa-india.org/forum/topics/ufabac-killer-application , http://www.ufa-india.org/forum/topics/ufabac-national-pension-scheme
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