CHAPTER- III

CONCEPT AND DEVELOPMENT OF

CORPORATE SOCIAL RESPONSIBILITY IN INDIA
 CHAPTER- III
CONCEPT AND DEVELOPMENT OF
CORPORATE SOCIAL RESPONSIBILITY IN INDIA

Corporate Social Responsibility encompasses not only what

companies do with their profits, but also how they make them. It goes
beyond philanthropy and compliance and addresses how companies
manage their economic, social, and environmental impacts, as well as
their relationships in all key spheres of influence: the workplace, the
marketplace, the community, and the public policy realm.

- Harvard University.

Introduction

The most noteworthy incident persuading ever phase of existence had been the
industrial revolution that fashioned the modern world. In the last two hundred years, the
accomplishments attained by the human civilization in terms of material escalation are
proportionately to a large extent greater than the material expansion mad in any other era.
The tree of development has awarded so many human friendly technologies which
designed a variety of transformations ranging from the trimming down the physical
labour to curtailing the enormous stretch of landmass and the whole humanity can be
unfolded with a single click. However, for all these accomplishments, the cost paid by the
humans is also beyond their reach.

Now, the state parties are under an obligation to implement innovative guidelines
and program to give effect to the tailored theory of development. The governments have
increasingly become aware of the significance of ensuring a union of developmental and
environmental issues. The term “Environment” includes water, air and land and the inter-
relationship which exists among and between water, air and land, and human beings,
other creatures, plants, micro-organism and property. This has even become an advanced
political issue in many countries because the atmosphere is so subtle that a minor
irrevocable smash up many result in cascading effects that may end up triggering more
damage that the yield on obtained from the primary trifling damage.

57
Article 14, 19 (6) and 21 of the Constitution of India deals with the right to equality,
freedom of expression and right to life and personal liberty respectively. All these rights
are secured to the people of India under the Constitution of India particularly in Part III
dealings with Fundamental Rights. The judiciary‟s dynamic interpretation of
fundamental rights have regulated into the rights to a healthy environment. The judiciary
has viewed the human rights on one hand and the environmental protection on the other
hand as the two faces of the same coin. The judiciary as a guardian of Fundamental Right
has protected the right of each individual in relation to environment under Article 21 of
the Constitution.

The Concept of CSR and Its Evolution

The various existing definitions of CSR signify the key role that CSR plays in our
business ecosystem. World business Council for Development defines CSR „the
continuing commitment by business to contribute to economic development while
improving the quality of life of the workforce and their families as well as of the
community and society at large.‟ Further, EC defines CSR as the responsibility of
enterprises for their impacts on society‟. To completely meet their social responsibility,
enterprises „should have in place a process to integrate social, environmental, ethical
human rights and consumer concerns into their business operations and care strategy in
close collaboration with their stakeholders.

These two definitions in brief suggest that CSR activities can majority be two
fold. Firstly, they could be a contribution towards the socio economic development
aiming at welfare of the society at large. Secondly, it could be also in the form of a sum
paid, monetarily or otherwise, for various environmental and other impacts a business
concern could have on a society. These are the most important dimensions to the concept
of CSR and essentially indicate towards the fact that business as an entity does not exist
in isolation but is reviewed in combination of its wide range of stakeholders like
shareholders, consumers, etc. Though all the definitions of CSR focus

58
Models and Theories of CSR

To analyse the implementation of CSR in the contemporary times it is important

to trace the path of its evolution over times. A discussion on the several models of CSR is
imperative for the same. The earlier models of CSR started off by denying the role that
corporate had towards the society. The Milton Friedman model) 1962-1973) stated that if
a businessman should perform his duty well, he is performing both a social responsibility
except to serve his shareholders and stockholders. Hence, though this is considered to be
the first model of CSR it does not essentially state about any moral, ethical and other
responsibilities that the corporate had towards society as a whole, but limits such
responsibilities only to its shareholders. This model can thus be well explained by
Friedman‟s statement that „In a free economy there is one and only one social
responsibility or business –to use its resources and engage in activities designed to
increase its profits so long as it stays within the rules of the game.‟1

The model which was propounded subsequently by Ackerman in the year 1976
envisaged a broader perspective to the concept of CSR. This model defined CSR with
respect to the internal policies in an organization. Such CSR was primarily conducted in
3 phases. The First Phase commences when the top management recognizes social
problem. When the staff specialists are appointed to look into the issues and find
measures to tackle it, it is known as the second phase. The third and the last phase is
characterized by the implementation of the strategy derived by the specialists. The
limitation of this model was that though it was wider in nature as compared to the model
by Friedman it restricted itself only to the internal policies of the company.

There have been other models such as Environmental Integrity and Community
Health model which gave supreme importance to environment and the human resources.
It therefore considered preservation and protection of the environment and also the health
of the people a very key ingredient for the contribution towards the society.

Though all these models and theories contributed to the concept of CSR, there
were one very important model laid the foundation of CSR in the contemporary times.

1
Capitalism and Freedom, University of Chicago Press, 2002 Fortieth Anniversary Edition, p. 133.
59
The Carroll model represents CSR system in a four point model and lays down four
responsibilities that a society owes towards the society namely, a pyramid to depict the
human and needs in a hierarchy, this model also depicts and CSR activities in a hierarchy
where the top of the pyramid is philanthropic, followed by ethical and then legal and the
bottom of the pyramid is economic. Thus essentially this model states that corporate
social responsibility involves the conduct of a business so that it is economically
profitable. Law abiding, ethical and socially supportive.2

In specific, the aim of the philanthropic responsibility is to be a good corporate

citizen and act towards the benefit of the society by improving the equality of life of the
people. Thus, it includes doing activities that are desired by global stakeholders. The
ethical responsibilities are aimed towards doing what is expected by global stakeholders
and consist of doing what is right and fair. The legal responsibilities of an organization
mean obeying the law and doing what is required to be done. Further money or profit
being the lifeblood of any business, economic responsibilities are key for any
organization. It is essential that the business is profitable not only for its owners but also
for its other stakeholders like shareholders and customers. Reducing production cost,
maximizing sales and adopting strategic business decisions are the base of not only the
economic decisions but also of the entire pyramid as these are the most of all the
obligations that a business concern has and unless these are fulfilled, the others cannot be
attained.

Indian History on CSR

a) The Father of Nation Gandhiji was a strong advocate of sarvodaya which meant
moral as well as material well being of all sections of the community. He believed
if socialist democracy was to function, adequate employment opportunities should
be provided to all citizens irrespective of their caste, colour and creed and enable
them to earn their living with self-respect and dignity
b) Prior to 1988, the Sachar Committee Report on simplification of Company Law
observed: „Every company, apart from being able to justify itself on the test of
2
http://research-methodology.net/carrolls-csr-pyramid-and-its-applications-to-small-and-medium-
sized-businesses/

60
 economic viability, will have to pass the test of socially responsible entity. In this
context, it will be judged by the various tests dependent upon the circumstances in
each company, and in each area. Thus, a chemical company, which may declare
very high dividends, may yet be responsible for polluting the water and air, would
have to be named as socially irresponsible company. No company in these days
can disown its social responsibility‟. Sachar Committee Report made in
obligatory on the Indian companies to report about their social responsibility.
c) Late Shri Lal Bahadur Shastri, the then Prime Minister in his inaugural address at
the International Seminar on social responsibilities of business held at India
International Center, said: „The benefits of economic development must accrue
more and more to the relatively less privileged class of society and there should
be progressive reduction of the concentration of incomes, wealth and economic
power. We must develop but we must not allow unbridled profit motive to be the
sole goal to economic activity. Let us look not to the immediate profit but to the
long-term gain. Let us build on strong foundations that will stand that test of time.
d) A seminar sponsored by Indian International Center, New Delhi, in 1966 on
„Social responsibilities of business made a declaration to this effect in following
words „Since the business life of India closely concerns and increasingly
determines the happiness and welfare of its people we declare that in addition to
making a fair any adequate return on the capital, business must be just and
humane, as well as efficient and dynamic. In the complex and economic business
life of the country, every enterprise has a manifold responsibility, viz. to itself, its
customers, workers, shareholders and the community and it is the task of
management to reconcile these separate and sometimes conflicting
responsibilities.
e) In 1966, Dr. V.K.R.V. Rao has suggested non-coercive and non-legal ways of
enforcing CSR, viz. (i) exemplary conduct and behavior on the part of elites in all
walks of life; (ii) voluntary action by associations of businessmen trade unions
and consumer associations; (iii) public pressures on the lines of, say, price
resistance movement by consumers and other groups in the community if and

61
 when necessary. Dr. Rao argued that CSR could be effectively ensured by the
business voluntarily rather than through legal coercion.
f) Social accountability is an international standard for social accountability initiated
by the Council of Economic Priority Accreditation Agency (CEPAA) in order to
ensure the voluntary standards applied in any organization. In addition to
performance standards, as organization must introduce a social management
system (SMS) to assure compliance and continuous improvement in social
performance in the mentioned practices which include a social policy, a planning
process and a designated senior manager to assure SA 8000 standards.
g) Global Reporting (GR) is a multi- stakeholder, international initiative established
to develop and disseminate globally applicable Sustainability Reporting
Guidelines. The GR seeks to elevate the quality of reporting and to achieve
greater comparability, consistency and usefulness of the reports. The 2002
Guidelines consist of 54 crore indicators and are organized into environmental,
financial and social dimensions.

Companies Act, 2013 and CSR

Companies Act, 2013 lays down the criteria‟s regarding corporate social
responsibility and duties of corporate towards outer world.

The rules of CSR and laid down under Section 135 of Companies Act, 2013. First
foremost, it lays down whom all as a Corporate need to constitute a CSR Committee,
under section 135(1) any company with Turnover of INR 1000 million or more; Net
worth of INR 5000 million or more Net Profit of INR 50 million or more during any
financial year.3

Broad ranges of activities are covered under CSR. These activities are prescribed
under Schedule - VII of the Companies Act. The manner in which these activities that
contribute towards CSR are enlisted is in a broad range manner. These prescribed
activities should be interpreted liberally capture there essence.

3
KPMG Flash News, KPMG India, the MCA Provides clarity on Corporate Social Responsibility
under Companies Act, 2013.

62
 The Act encourages companies to spend at least 2% of their average net profit in
the previous three years on CSR activities. The ministry‟s draft rules, that have been put
up for public comment, define net profit as the profit before tax as per the books of
accounts, excluding profits arising from branches outside India.4

Draft rules of September 2013 laid down clarifications regarding the CSR
objectives, functions and procedure in respect to a Corporate. It stated Surplus arising out
of CSR activities will have to be reinvested into CSR initiatives, and this will be over and
above the 2% figure; The company can implement its CSR activities through its own
directly or by its own non-profit registered non-profit organizations that have a record of
atleast three years in similar such related activities or by Collaborating or pooling their
resources with other companies further Only CSR activities undertaken in India will be
taken into consideration and any activity exclusively related to employee or member
would not qualify under it.5

CSR Functions and Processes

It is broadly carried out under two heads firstly Board of Directors (BOD) and
secondly CSR Committee the both are distinctive in their obligations towards CSR
mission of a Corporate and work accordingly to achieve the same. Clause 135 of the
Companies Act, 2013 requires a CSR committee to be constituted by the board of
directors. They will be responsible for preparing a detailed plan of the CSR activities
including, decisions regarding the expenditure, the type of activities to be undertaken,
roles and responsibilities of the concerned individuals and a monitoring and reporting
mechanism. It should consist of at least three directors out of whom at least one is an
independent director. This composition will be disclosed in the board‟s report as per sub-
section (3) of section 134. The CSR committee will also be required to ensure that all the
income accrued to the company by way of CSR activities is credited back to the CSR
corpus.

4
Proposed Draft Corporate Social Responsibility Rules under Section 135 of the Companies Act, 2013,
available at http://www.cuts-international.org/pdf/Draft-CSR_Rules_2013.pdf.
5
Implications of Companies Act, 2013, Corporate Social Responsibility, available at http://gtw3
.grantthornton.in/assets/Companies_Act-CSR.pdf.

63
 The new Act requires that the board of the company shall, after taking into
account the recommendations made by the CSR committee, approve the CSR policy for
the company and disclose its contents in their report and also publish the details on the
company‟s official website, it any, in such manner as may be prescribed. If the company
fails to spend the prescribed amount, the board, in its report, shall specify the reasons.

Process of CSR in a corporate starts with Developing a CSR strategy and policy.
The Companies Act, 2013 requires every company to put out its CSR policy in the public
domain. The guidance provided in the Act and the draft rules on what constitutes a CSR
policy are that it should exclude normal business activities of the company and contain a
list of the CSR projects or programs which the company plans to undertake during the
implementation year.

While specifying the annual report requirements, the draft rules go on to say is
that the company must provide a brief outline of its CSR policy, including „the statement
of intent reflecting the ethos of the company, broad areas of CSR interest and an
overview of activities to be undertaken and a web link to the CSR policy including „the
full of projects, activities and programs proposed to be undertaken by the company.

Since most of the development requires long-term commitments and their impact
often takes a while to accrue, a good CSR practice requires that a company that is serious
about its CSR should develop a long-term (three to five years) vision and strategy which
is reviewed annually and the activities and budgets are planned on an annual basis.

Developing the CSR strategy and policy requires the Corporate to perform certain
activities which would include reviewing the past as well as the current CSR activities
and examining their alignment with Schedule VII of the Companies Act, 2013; Studying
the publicly available information on national and local development priorities; Meeting
development experts in the government as well as the NGOs to understand priorities and
identifying potential areas of intervention etc.

The Corporate after developing the CSR strategy and policy would operationalize
the institutional mechanism it has built up. These implementation mechanisms by a

64
company can be done by several options i.e. self - execution through an in-house CSR
department and a company foundation with execution capabilities; Making grants to an
independent implementation partner (which has a track record of at least three years) or
the grants can be made directly by an in-house CSR department through the company‟s
grant-making Foundation.6

Many companies have set up their own foundations (a term used loosely to
describe a non-profit entity promoted by a company) to implement their CSR activities.
The advantages that they see in this are that it enables leveraging of funds from other
sources i.e. the government schemes and other foundations. Typically, profit
organizations are not eligible for such funds further since the skills, job titles, career paths
and cost structures required for the execution of CSR projects are quite different from a
company‟s operations, a separate foundation enables the company to keep these distinct.7

Under the draft CSR rules, an entity that a company sets up to facilitate the
implementation of its CSR activities is to be registered in India as a trust, society, or a
non-profit company under section 88 of the Companies Act, 2013.

Establishing a legal entity and aligning the accounting, tax, finance,

administration, HR and IT systems to deliver the commitments made in the CSR policy
requires the Corporate to perform certain activities like selecting the organization model
for the CSR implementation: in-house versus outsourced and its legal entity; formalizing
the job description, the roles and responsibilities and the reporting relationships for the
CSR team integrating budgeting, procurement, payments and reporting for CSR with the
existing finance, administration and IT systems.

The Corporate undertakes the process of Due diligence of the implementation

partner after operating the institutional mechanism. This is to determine the risks as well
as the benefits of working with a potential implementation partner. This process has to be

6
Handbook on Corporate Social Responsibility in India – www.pwc.in
7
Article B. Carroll and Kareem M. Shabana, The Business Case for Corporate Social Responsibility: A
Review of Concepts. Research and Practice.
8
The non-proift organization formerly known as Section 25 companies are now called Section 8
companies after the introduction of Companies Act, 2013.

65
sufficiently robust to ensure that a company‟ implementation partners have the
reputation, competence and integrity to deliver effective programs on the ground. A
detailed due-deligence is essential for large and long partnerships but may be brief for a
relatively small or opportunistic partnership opportunity.9

Due diligence of the implementation partner requires the Corporate to perform

certain activities i.e. Establishing a due diligence criteria to evaluate the implementation
or concept development agency including its incorporation, permits and licenses,
systems, processes, public image, management, team deployment, track record, financial
soundness, competence level, presence in desired geography, compatibility with company
CSR policy and any conflicts of interest; Establishing a due diligence criteria for
evaluation and empanelment of private funders for partnership and joint projects etc.

Corporate then opts for process of Project development as we know the CSR
strategy of a company will be implemented through a series of projects which will have
definite beginnings, ends, expected outputs and outcomes as well as budgets associated
with it. These projects may be of a short duration to few months) or multi-year.

Every project, whether developed by the in-house team or an external agency,

must be formally examined and approved. This is to ensure that each project is in line
with the CSR strategy and policy, the monitoring indicators are clearly defined and
relevant and there is an adequate budget available. Projects that go on for longer
durations or demand a larger amount of resources must be scrutinized more carefully than
the others. The CSR committee is ultimately the one responsible for every project it can,
however, choose to delegate authority to a project approval committee consisting of
company staff and outside experts with clearly defined roles and responsibilities.10

The activities that must be followed by the Corporate to successfully develop and
get it approved involves developing a framework to identify key stakeholder groups

9
Hemant Goyal & Sandhya Gupta, Corporate Social Responsibility as per New Indian Companies Act,
2013, available at http://www. Globaljurix.com/our-publications/corporate-social-responsibility-as-
per-new-indian-act- 2013.pdf?
utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original.
10
CSR under the Companies Act, 2013, available at http://www.legalservicesindia.com/article/article/
csr -under-the-companies-act-2013-1704-1.html.

66
including the local community, the local government or bodies, academia and research
institutions, investors, etc; Conducting a needs assessment (if required) to assess
development priorities. The methodology for this can be participatory processes, surveys
or a combination of the two; determining the delegation of power for the project
approval; establishing as evaluation framework for the appraisal of the project concepts
and implementing agencies that ensure complete alignment with the CSR policy etc.

While working with an external agency, it is very important to enter into a formal
arrangement which is referred to here as a Memorandum of Understanding or MoU. It
defines the roles, responsibilities, deliverables, commitments and consequences in case of
any breach. This is essentially a formal acknowledgement that all the partners have
voluntarily consented to work together to achieve an agreed outcome that requires each
one to play their respective roles.

For a project to deliver the desired results, it should have sufficient funds to carry
out the planned activities. At the same time, having excess funds in the bank account is
not prudent financial management. Thus, the scheduling of disbursements is important
both for the company (to plan its cash flows from the CSR budget) and the implementing
agency and hence needs to be detailed in the MoU.11

Process of Progress monitoring and reporting serves the purposes that it highlights
any slippages and helps to determine a corrective action that must be taken if need be and
it provides an excellent opportunity for learning what worked and what did not. This can
than be immediately applied to other projects further this is an essential part of the
directors‟ report as per the CSR clause of the Companies Act, 2013.12

Impacts of the development projects typically take a while to manifest thus impact
measurement studies have different objectives from project monitoring and typically have
to be undertaken after providing sufficient time for them to manifest. Impact

11
Nasscom. key highlights of the Companies (Corporate Social Responsibility Policy) Rules, 2014
(CSR Rules) and Schedule VII of the Companies Act, 2013, available at http://www.nasscom.
in/sites/default/files/policy_update/Corporate%20 Social%20Responsibility%20Policy%20Rules
%202014.pdf.
12
Section 135 of Companies Act, 2013, available at http://www.mca.gov.in/Ministry/pdf/ Companies
Act, 2013.pdf.

6
measurement is often quite specialized and needs to be undertaken by an independent
team with specific skills depending upon project design.

There are several tools and frameworks for measuring impact. Each has its pros
and cons depending upon the nature of interventions, time and budgets available for the
study and the availability of people. Thus, selecting the impact measurement
methodology is important. Thus, impact studies have to be carefully planned in terms of
team composition, timing and methodology. The process must be driven by the CSR
committee which can delegate the day to day management of the process to an
appropriate structure within the company.

The processes mentioned above are a broad idea how to govern a CSR policy in a
Corporate to make it legally accurate as well as well managed.

The Question of ‘Mandatory’ CSR

In the recent times the controversy in respect to CSR has been regarding whether
such mandatory payment of CSR by companies would, in effect, serve a positive purpose
in the economy. The move by the govt. to make CSR payment compulsory by companies
crossing a specified threshold, have not been completely accepted but has received mixed
bag of opinions and emotions.

Some corporate have not welcomed this move as they consider it interference by
the govt. in their functioning.13 It has been felt by many that activities like CSR should be
left at the discretion of the corporate houses and there should be no mandate for the same.
Some have felt that this is a move by the govt. is driven by political motives and that
govt. is putting its inherent responsibilities like helping the economically disadvantaged
and enforcing the economic equality in the country. By making CSR mandatory the
liability to implement such task fails on the corporate. It is thus felt that by proposing
mandatory CSR spending, the Indian govt. was likely attempting to satisfy voters by
forcing companies to promote social welfare and to please companies by avoiding

13
Gahlot Sushmita, Corporate Social Responsibility: Current Scenario, Research Journal of
Management Sciences December 2013. Available at http://www.isca.in/IJMS/ Archive/v2/i12/3.
ISCA0RJMS-2013-105.pdf.

6
additional taxes while allowing them to benefit from the autonomy of choosing how and
where they will support social goods.14

There are several other issues that arise by making CSR mandatory. Mandatory
CSR may impose disproportionate cost on smaller and younger companies for whom net
profit (internal source of capital) forms important source of investment. 15 The Planning
Commission has been of the view that making CSR mandatory will lead to corrupt
practices and meddling by high handed implementing authorities. Some believe that
making CSR mandatory would encourage companies to reduce wages, fudge accounts or
indulge in unfair trade practices. 16 „Thus mandatory CSR activities may not create an
impact as businesses may just look at allocating money for such activities rather than
seeking optimal ways for addressing social issues, According to Michael E Porter,
Professor Harvard Business School Organizations just sprinkle money around, but there
will be no social impact and no solution arises from this approach.

However, if implemented properly CSR could act as a boon for the population of
India where 1/3re is illiterate and 2/3rd lack access to proper sanitation. 17 In sanitation.18
In a country where 21.9% of the population still lives below the poverty line, this step
could be hailed as a positive step towards ensuring that business contributes to equitable
and sustainable economic development.19 This development. This could result a change
in the entire socio economic condition of the country.

On August 15, 1972 India completed twenty five years of its independence.
During this period she embarked upon four Five Years Plains. Economic development

14
Caroline Van Zile, India‟s mandatory Corporate Social Responsibility Proposal: Creative Capitalism
meets Creative Regulation in the global Market, Asian Pacific Law and Policy Journal, Vol. 13:2,
available at http://blog.hawaii.edu/aplpj/files/2012/05/APLPJ_13.2_VanZile.pdf.
15
Geetika Jaggi, Mandatory CSR in India: Proponents for and against, IOSR Journal of Business and
Management (IOSR-JBM), Vol. 16, Issue 6. Ver. II (Jun. 2014), PP 179-181, available at
http://iosrjournals.org/iosr-jbm/papers/Vol16-issue6/Version-2/P01662179181.pdf.
16
Mandatory Corporate Social Responsibility: Is the Government shifting its failure to Corporate
India?, available at https://www.theglobaljournals.com/ijar/file.php?val=January_2014_
1388584331_ee78c_89.pdf.
17
Akanksha Jain, The mandatory CSR in India: Boon or Bane, Indian Journal of Applied Research,
Vol. 4/Issue:1/Jan 2014, available at http://www.the globaljournals.com/ijar/file.php?val =January_
2014_1388584331_ee78c89.pdf.
18
Ibid.
19
Ibid.

6
took place on the basis of planning done by the Government in which the idea of 'mixed
economy' was accepted and accordingly both the public and private sectors operated in
the country's economy. The question that may be posed at this stage is: how far does this
development reflect the urges and aspiration of Mahatma Gandhi as indicated in his
trusteeship theory, and how far has the business in India been socially responsible? As
regarded the first question, the Government of the day never specifically thought of
building India's economy in terms of the trusteeship theory of Gandhi. There were
definitely certain reasons for not doing so During his life-time Gandhi did not present,
nor did he have time to present, a unified theory of trusteeship as envisaged by him, as
his life-span was cut short by the bullet of an assassin soon after the country attained its
independence under his stewardship. Thus, his theory stood scattered over a number of
speeches made by him from time to time be four a number of gatherings of diverse nature
and characteristics under varying situations, both local and national. Under the
circumstances, his trusteeship theory was interpreted by various interests in their own
way to suit their convenience.

A general impression prevailed among the people of India that the theory in its
essence was simply a pious idea of converting businessmen into trustees by effecting
attitudinal process, ultimately resulting in complete disappointment and frustration in
regard to its success. Moreover, most of it depended on the businessmen to so convert
themselves and, thus, the theory was left to their mercy and hence was doomed to fail.
Such a fallacious thought existed, and exists even today, in the minds of the common
people had no serious attempt was ever made for weaving the theory into a unified and
coherent philosophy. Moreover, the political leaders and disciples of the Mahatma who
were very close to him and mattered in respect of later developments on the Indian scene
were somewhat doubtful about the success and efficaciousness of the trusteeship theory
as it stood in a raw and scattered form, and hence they did not give it the importance that
it deserved in respect of this correct formulation, interpretation and actual
implementation. Hence the problem of restructuring the society on the basis of
trusteeship never arose. The concepts of 'welfare state', 'classless society', 'co-operative
commonwealth', 'socialist or socialistic pattern of society', did emerge, in the context of
the reconstruction of Indian society, from the mouths of the leaders of the Government.

7
But nowhere was the idea of trusteeship seen writ large on the policies and programmes
of the Government. However, for the first time, it was given to the Swatantra Party of
India, founded by the late Shri C. Rajgopalachari, to include 'trusteeship of Mahatma
Gandhi' as its objective for the reconstruction of Indian society. But on a deeper study of
its overall objectives it appears that trusteeship as envisaged by the Swatantra Party does
not contain the revolutionary fervour of Gandhi. Moreover, it stands, more or less, for
status quo without land reforms and other economic reforms of vital importance as
envisaged by Gandhi in his trusteeship theory and thus the trusteeship theory as
enunciated by the Swatantra Party appears to be a camouflage.

As regards the second question about the social responsibility of businessmen in

India, it appears that the Indian business has succeeded to a certain extent in the aphere of
'contributive justice' but has failed in the realm of 'distributive justice'. It has contributed
much in pre- and post-independence days towards the industrial development of the
country in spite of the obstacles placed by the foreign government in its way in the pre-
independence period. The private sector has always dominated the scene in the field of
industrial development in India and naturally the industrial development of the country
owes much to the initiative, perseverance and enterprise of the industrialists. In the initial
stages of industrial development, labour was not much conscious of its rights and the
spirit of trade unionism had not developed much. In such an atmosphere, the industrialists
could develop the economy with their finances, hard work and enterprise without doing
distributive justice to labour. Curiously enough, they accumulated enormous wealth,
quite disproportionate to their wori, during this period on account of lack of awakening
on the part of labour. The profits earned by businessmen during and after World War II
are certainly a proof of it. Though, during this period, direction and entrepreneurship
were provided by the industrialists, the labour did work under 'nerve-racking' conditions
in 'furrow and furnace' with low wages and lived its youthful and vigorous life in the
'dark, dingy and disease-ridden hovels' and, therefore, its unseeingly 'underneath'
contribution to the process of industrialisation cannot be brushed aside. The history of
industrialisation is replete with instances of immense sacrifices on the part of labour and
does not need further elucidation. The other facet pertaining to the social responsibility of
Indian business will be dealt with later in this chapter.

7
 It is clear that the State in India did not, by its conscious efforts, embark upon any
scheme of trusteeship as visualised by Gandhi. But after independence it did embark
upon a plan of continuous economic development of the country through a planning
process and did achieve certain useful results. Such a plan of economic development has,
undoubtedly, unleashed certain forces in the country which, if properly canalised and
consciously directed in future, may usher in a new society, more or less akin to the one
contemplated by Gandhi on the basis of trusteeship. Therefore, there should not be much
cause for despondency on this score, though the developments in certain directions have
been to a great extent contrary to the values nurtured and developed by Gandhi by years
of service and sacrifice for the nation. Now let us discuss in the pages that follow the
constructive forces unleashed by the policies of the Government and also the resultant
constraints or obstacles placed on Indian society on account of these very or certain other
governmental policies for ushering in the trusteeship theory of Mahatma Gandhi in India.

Ethics and Business

There is the emergence of a whole new ethics industry, which can be seen as both
a product and a constituent part of the new 'accountability'. Broader ethical approach
ensures financial benefits in the long run and actually ethical conduct is in fact a
good business strategy.

The new accountability, which comes under the nomenclature of corporate

responsibility, is being converted into a new market opportunity by being seen as a
source of competitive advantage over the rest in the market. Social conscience is a
key part of corporate public relations and advertising campaigns.

Often, such an amalgamation of ethics with business has taken place as a

response to crisis situations relating to environmental and human rights issues which
the companies had to face in the past.

7
Reputation Risk Management

Managing risk is a central part of many corporate strategies. Reputations that take
decades to build lip can be ruined in hours through incidents such as corruption
scandals or environmental accidents. These events can also draw unwanted attention
from regulators, courts, governments and media. Building a genuine culture of 'doing
the right tiring' within a corporation can offset these risks. 6 In Nigeria. the Shell
Company's operations came under serious criticism for its oil extraction exercise
and it was seen as a public relations disaster which was followed by Shell's plan to
dump its Brent Spar Oil Rig at sea.

In this context the new philosophy of corporate responsibility adopted by the

company can be seen as a response to a very old way of crisis management.
Importance of reputation has been implicit in factors such as public relations crisis
management.

Thus, corporate responsibility is a part of process of managing the costs

and benefits of business activity to both internal and external stakeholders.
Setting the boundaries for how those costs and benefits are managed is partly a
question of business policy and strategy and partly a question of public governance.

It is interesting to note that Bhopal, which can be called a gross instance of

corporate environment "irresponsibility", has influenced corporate behavior on health,
safety and environmental issues and has pushed back the frontiers of the law on
corporate responsibility.

National Instruments Governing Corporate Social Responsibility

A) The Environment Protection Act, 1986 - is the most important and primary
Act which deals with the provisions concerning rules for protection of the Mother Nature.
With the increasing industrialization & the tendency of the majority of industries to

7
congregate in areas which are already heavily industrialized, the problem of the pollution
was started to be felt in the country. Since the sixties concern over the state of
environment has grown the world over. There has been substantive decline in
environment quality due to increasing pollution, loss of vegetal cover and biological
diversity, excessive concentrations of harmful chemicals in the ambient atmosphere and
in food chains, growing risks of environmental accidents and threats to life support
systems. The decisions which were taken at the United Nations Conference on the
Human Environment held in Stockholm in June, 1972 were based on the world
community‟s resolve to protect and enhance the environmental quality. While
participating in the said Conference Government of India strongly voiced the
environmental concerns. Although several measures have been taken for environmental
protection both before and after the Conference it was found necessary to enact a
comprehensive law on the subject to implement the decisions of the Conference.
Accordingly the Environment (Protection) Bill was introduced in the Parliament.

B) The Hazardous Wastes (Management and Handling) Rules, 1989 - the

Central Government in July, 1989 issued the first comprehensive rules to deal with the
toxic problem. Wherein, it ensures a systematic regulation of hazardous wastes, which
are mostly by-products of different industries and doesn‟t deal with the radioactive
wastes, wastes discharged from ships, waste water and exhaust gases which are regulated
under the Water Act and Air Act. Accordingly, the government has mandated that no
person without authorization may receive, treat, collect, transport, store or dispose of
hazardous wastes. One noteworthy aspect is that it prohibits the import of hazardous
wastes into India for dumping and disposal, which became applicable since January 2000.
Moreover, it provided for provisos to regulate the manufacture, use, import, export and
storage of hazardous micro-organisms and genetically engineered cells were issued under
the Environment Protection Act in December, 1989.

7
Responsibility of the occupier for handling of wastes

1) The occupier generating hazardous wastes listed in column(2) of the Schedule in

quantities equal to or exceeding the limits given in column(3) of the said
Schedule, shall take all practical steps to ensure that such wastes are properly
handled and disposed of without any adverse effects which may result from such
wastes and the occupier shall also be responsible for proper collection, reception,
treatment, storage and disposal of these wastes either himself or through the
operator of a facility.
2) The occupier or any other person acting on his behalf who intends to get his
hazardous waste treated by the operator of a facility under sub-rule(1) shall give
to the operator of a facility, such information as may be specified by the State
Pollution Control Board.

C) The Companies Act, 1956 - Section 217 of the Act, 1956 stipulates that the
Board of Directors Report need to possess information on conservation of energy. It must
include energy conservation measures taken; if any, impact of the measures taken above
for reduction of energy consumption and consequent impact on the cost of production of
goods.

D) Indian Factories Act, 1948 (Amended in 1987) – There are no clearly distinct
channel for public disclosure. Ideally, every factory in India is required to submit reports
to their relevant state governments in the format mentioned under the Act, it covers
information relating to labor and employment, working hours, accidents, health and
safety.

E) Corporate Responsibility for Environmental Protection (CREP), 2003-

CREP is a charter promoted by the Central Pollution Control Board of India for
Commitment and voluntary initiatives of industry for responsible care of the environment
for building a partnership for pollution control. It is an initiative which requires
compliance by leading resource intensive industries. The Ministry of Environment

7
&Forest has launched the Charter on “Corporate Responsibility for Environmental
Protection (CREP)” in March 2003 with the purpose to go beyond the compliance of
regulatory norms for prevention & control of pollution through various measures
including waste minimization, in-plant process control & adoption of clean technologies.
The Charter has set targets concerning conservation of water, energy, recovery of
chemicals, reduction in pollution, elimination of toxic pollutants, process & management
of residues that are required to be disposed off in an environmentally sound manner. The
Charter enlists the action points for pollution control for various categories of highly
polluting industries. The Task Force was constituted for monitoring the progress of
implementation of CREP recommendations/ action points.

F) The Public Liability Insurance Act, 1991 – With the growth of hazardous
industries, risks from accidents processes and operations, not only to the persons
employed in such undertakings but also to the public who may be in the vicinity, have
increased. The people who are affected by accidents in the hazardous installations are,
very often, economically weaker sections and suffer great hardships because of delayed
relief and compensation. While the workers and employees of hazardous installations are
protected under separate laws, members of the public are not assured of nay relief except
through long legal process. To ameliorate the sufferings of members of the public due to
accidents which take place in hazardous installations it was found essential to provide for
mandatory Public liability Insurance. To achieve this objective the Public Liability
Insurance Bill was introduced in the Parliament.

Measures for Effective Implementation of Corporate Social Responsibility

The sector is facing a major backlash due to sustainability crisis. The social and
economic disparity between the rich and the poor continue to exist. The major focus areas
need to include education, health, livelihood creation, skill development, and
empowerment of weaker sections of the society. This gap needs to be bridged at the
earliest subsequently only the people may possibly consider further than the means to
satisfy their desire and need for food. The step towards this dream is by creating unfair

7
schemes for the benefit of the needy to fulfill the concept of welfare state as enshrined in
our Constitution. The following steps could be taken to improve the conditions:-

a) All the reports that require the institutions to suggestions and measures taken for
the implementation of Corporate Social responsibility and other eco-friendly
initiatives need to be made available to the public domain so that there can be
social auditing of their activities rather than docking it up in the lockers.
b) It is essential for companies to adopt a long-term approach rather than sticking to
short-term methods for the eco-friendly measures adopted by them. Furthermore,
the corporations could involve employees to gain more positive implementation
of their programs.
c) It‟s rather more important to monitor activities and work in close liaison with
implementation procedure to ensure that the initiative delivers the desired
outcome. The institutions could even tie up with varied NGOs working with the
same motto.
d) Ideally, CSR policy should function as a built-in, self-regulating mechanism in
which companies would monitor and ensure their support to law and ethical
standards. The challenge is to apply fundamental business principles to make
Corporate Social Responsibility focused on what really matters, and it could be
achieved by concentrating on priority based decisions and special attention needs
to be paid to the resource allocation.

In the era of globalization, liberalization and privatization, the companies need to

accept the schemes keeping in minding their responsibilities derived by this newly
developed theory. The nation exists to serve human beings so all the entitles have an
obligation towards the society. Te prior to the evolution of corporate Social
Responsibility, the business motive is to rear more and more profit but now it is to
maintain the middle path i.e. to do business and establish measures to save the
environment from any harm.

7
Constitutional Provisions

To comply with the principles of the Stockholm Declarations adopted by the

International Conference on Human Environment, the Government of India, by the
Constitution 42nd Amendment Act, 1976 made the express provision for the protection
and promotion of the environment, by the introduction of Article 48-A and 51-A (g)
which form part of the Directive Principles of State policy and the Fundamental Duties
respectively.20

Thus the Indian Constitution makes two fold provisions:

i) On one hand, it gives direction to the State for the protection and improvement of
environment.
ii) On the other hand, the citizens have a constitutional duty to protect and improve
their natural environment.

Seventh Schedule of the Constitution

a) Entry 17-A, providing for forests. Because the subject of the forest originally was
in the State List as entry 19, this resulted into no uniform policy by the State so as
to protect the forests. By placing the item „Forest‟ now in the concurrent list by
the entry 17-A, along with the state, parliament has acquired a law making power.
Because of the above change, in order to have a uniform policy on the forest
management the Government of India in the year 1980 set up the Ministry of
Environment and Forests. By virtue of this change Parliament also enacted, the
central legislation, i.e., Forest Conservation Act, 1980, which was amended in
1988. The Government also adopted the new National Forest Policy in 1988 with

20
a) Article 48-A: Protection and improvement of environment and safeguarding of the forests and wildlife,
“The State shall endeavor to protect and improve the environment and to safeguard the forest and
wild life of the country”.
b) Article 51-A (g): “It shall be the duty of every citizen of India to protect and improve the natural
environment including forests, lakes, rivers, and wildlife and to have compassion for living
creatures”.

7
 a twin object, one to protect the forests and another to consider the needs of the
forest dweller.
b) Entry 17-B, for protection of wild animals and birds. Similarly the insertion of the
entry 17-B in the concurrent list has empowered the Parliament to enact a law
with a view to protect wild animals and birds. Although we had a comprehensive
legislation in the form of a Wildlife Protection Act, 1972, the 42nd Amendment
has considered the wildlife along with forests. India has also formulated National
Action Plan for the Protection of Wildlife.
c) Entry 20-A, providing for population control and family planning. The new entry
20-A in the concurrent list empowers the Parliament to regulate the population
explosion one, of the prime cause of the environment pollution. By these changes,
legally and constitutionally it has become possible to take a uniform action in the
matters of proper management of the environment.

Eleventh Schedule of the Constitution

This new Schedule is added by the constitution 73rd Amendment Act, 1992, which
received the assent of the President on 20 th April 1993. This schedule has 8 entries (2, 3,
6, 7, 11, 12, 15 and 29), providing for environmental protection and conservation. This
Schedule assigns the functions of soil conservation, water management, social and farm
forestry, drinking water, fuel, and fodder, etc, to the Panchayats with a view to
environment management.

Twelfth Schedule of the Constitution

The entry number 8 of these Schedule added to the constitutional text by the 74 th
Amendment Act, 1992, which received the assent of the President on 20 th April 1993,
provided for the Urban Local Bodies, which the function of protection of environment
and promotion of ecological aspects to them. This Schedule commands the urban local
bodies such as municipalities to perform the functions of Protection of environment and
promotion of ecological aspects.

7
Corporate Responsibility and Environment Impact Assessment 21

The Supporters of Milton Friedman school of thought may find it difficult to

accept that there could be any social responsibility of a corporate organization, which has
been formed, with the motive of maximizing profits and doing business.

Similarly, it is also presumed that state is the strongest potential human right
violator and accordingly article 13 of the Indian Constitution has been interpreted in the
judicial pronouncements. But since recent times such presumptions and thoughts have
been made subject to scrutiny especially in wake of expansion and growth of private
sector. Such a rethinking is desirable because today expansion of private organizations is
a reality and, therefore, their functioning in the society cannot be overlooked. Also,
corporate citizenship is now understood as no longer discretionary.

In this respect one crucial kind of responsibility, which can be studied separately
from other human rights responsibilities is that related to environment. In pursuance
of business the corporate bodies tend to disregard the effect of their activities on the
immediate environment and this disregard itself becomes the reason responsible for
several other problems related to both humans and the environment in general.

The raison be etre of most business organizations is to make money, perhaps as

much of it as possible. This is not an immoral objective in itself, but neither is it
necessarily a moral one. However, there is a growing discourse, of much wider concept
of corporate responsibility and accountability, not just among philosophers or social
critics but also in the business community itself. Under the present discourse on human
rights, business is seen as accountable to not just the shareholders but also the
'stakeholders'.

Environment protection constitutes a precondition for the effective

enjoyment of human rights protection. The two concepts have become interlinked and

21
Vernika Tomar, ‘Corporate Responsibility and Environment Impact Assessment’, Journal of the
Indian Law Institute, Vol. No. 50:2, 2016.

8
interdependent now. Synergies have developed between these previously distinct fields.22
In fact, some hold it strongly that there is the obvious relationship among environment,
economic development and human rights that occurs with global problems involving
the shared concerns of health, safety and individual well-being.23 It is certainly
reasonable to claim that development is about improving the quality of life and, therefore,
inappropriate development is development inconsistent with basic human rights.24 It
is further reasonable to claim that development at the expense of environmental quality is
detrimental to human condition.25

In this context, fixing of environment problems has gone beyond the scope of
any national government. Corporate responsibility is a concept whereby companies
integrate social and environmental concerns in their business operations and in
their interaction with their stakeholders on a voluntary basis and from this has
emerged the concept of corporate environment responsibility (hereinafter, CER).
CER signifies the environmental commitments of the companies through material and
energy management and a transparent working within ecological limits.

An environmentally responsible company aligns its business with ecological

principles and can be expected to abide by the following: 26

a) Embraces sustainability and the 'precautionary principle':

b) Adheres to government regulations;
c) Uses the earth resources efficiently:
d) Internalizes environmental costs and benefits and
e) Measures and regularly reports the results and impact of its activities on the
environment and so on.

22
G.S. Karkara, Human Rights, Development and Environmental Law: AnAnthology 52 (2006).
23
Robert E. Lutz, Ibrahim Shihata, David Wirth, Philip Alston, Stephen C. Mc Caffffrey, John Porter
and John Warren Kindt : “Environment, Economic Development And Human Rights: A Triangular
Relationship?” 82 American Society of International Law Proceedings 40 (Apr 20-23, 1988).
24
Ibid. at 41.
25
Ibid. at 41.
26
“Defining Corporate Environment Responsibility”; available at http:// www.pollutionprobe.org/
Report s/cerreport.pdf

8
 Out of these, the CER assessment tools of measuring, auditing and reporting are
important and indispensable from the point of view of obtaining information on the
status of environmental policy of companies. The phrase „Environmental Impact
Assessment‟ comes from section 102 (2) of the National Environmental Policy Act
(NEPA), 1969, USA. EIA is an effort to anticipate measure and weigh the biophysical
changes that may result from a proposed project. It assists decision-makers in considering
the proposed project's environmental costs and benefits. Where the benefits sufficiently
exceed the costs. The project can be viewed as environmentally justified.27

Environmental Impact Assessment (EIA) is an important management tool for

ensuring optimal use of natural resources for sustainable development. It is a formal
study process used 10 predict the environmental consequences of any development
project. EIA thus ensures that the potential problems are foreseen and addressed at an
early stage in project planning and design.

EIA as a Tool and Version of Precaution

At its core, the precautionary principle of the environment law is a risk

management theory that elaborates on the simple command "show me." It decides
whether the regulator or the regulated must be "shown," whether “show" means proof to
a scientific certainty or scientific consensus, a scintilla of evidence, a wild hunch, or
some other standard.28 It decides when the showing is to Start. When It must be
completed, what the consequences of not showing are, what roles the regulators and the
regulated have in the process of showing, and whether showing should protect the
public interest primarily under a liability model or a preventive model.29

The precautionary principle has been adopted in such a widespread fashion

that it is now difficult to find in either the international environmental arena

27
Shyam Divan and Amin Rosencranz, Environmental Law and Policy in India 417 (2001).
28
Phillip M. Kannan, “The Precautionary Principle: More Than A Cameo Appearance in United States
Environmental Law?” 31 William and Mary Environmental Law and Policy Review 409 (Winter,
2007).
29
Ibid.

8
or countries with advanced environmental protection frameworks an environmental
policy document, a new environmental law, or even a political statement about
environmental management that does not include a reference to the principle or
reflect some of the core ideas of the precautionary concept. 30

The precautionary principle/approach is a common place internationally (and, in

fact, is considered by many to have crystallized into a norm of customary
international law) and in domestic jurisdictions, is a testament to the soundness of the
concept and the usefulness of considering precaution when devising environmental
management and protection strategies.31

The precautionary principle or approach is generally understood to include

three elements: "fully assessing possible impacts of an action, shifting the burden
of proof to those whose activities pose a threat to the environment, and not acting
if there is significant uncertainty or risk of irreversible harm.32 The first two
elements are procedural, and the third is substantive. And EIA is the most rational
vehicle of the precautionary principle because it is a practice, which is appropriate
for considering precaution; namely, whether to proceed with development
proposals in situations where uncertainty exists about future environmental effects.

Judicial Pronouncements and EIA

In India, while examining the issue whether mining activity in an area up to 5Km.
From Delhi-Haryana border on the Haryana side of the ridge and also in the Aravali hills
causes environment degradation. The apex court in a PIL in M C. Mehta v. Union of
India,33held that the precautionary principle requires anticipatory action to be taken to

30
Warwick Gullett, “The Precautionary Principle In Australia: Policy, Law & Potential Precautionary
EIAs” 11 Risk: Health, Safety and Environment 93 (Spring, 2000).
31
Id. at 94.
32
Charmian Barton, “The Status of the Precautionary Principle in Australia: Its Emergence in
Legislation and as a Common Law Doctrine” 22 Harvard Environmental Law Review 509-515 (1998)
; also see supra note 17.
33
AIR 2004 SC 4016.

8
prevent harm. The harm can be prevented even on a reasonable suspicion. It is not
always necessary that there should be direct evidence of harm to the environment.

The precautionary principle has been again affirmed and well explained by the
Supreme Court in Andhra Pradesh Pollution Control Board v. M V. Nayadu.34 The
apex court held:35

The principle of precaution involves the anticipation of environmental harm and

taking measures to avoid it or to choose the least environmentally harmful activity. It is
based on the scientific uncertainty. Environment protection should not only aim at
protecting health, property and economic interests but also protect the environment
for its own sake. The precautionary duties must not only be triggered by the suspicion of
concrete danger but also by way of (justified) concern or risk potential. The principle
suggests that where there is identifiable risk or serious irreversible harm. It may be
appropriate to place the burden of proof on the person or entity opposing the activity
that is potentially harmful to the environment.

Bharucha J dissenting opinion in the Narmada Bachao Andolan v.Union of

India,36 highlighted the importance of EIA of the Narmada Sagar Project in absence of
which he judged that the construction work on the dam should cease. Perhaps, this is
one of the first explicit and elaborate judicial recognition of EIA wherein it conveys
that EIA should not be run on the discretion of the administrative branches of the
government because it derives its strength from the law itself.

Politics of EIA Notifications in India: Dilution of Law

A beginning was made in the country with the impact assessment of river
valley projects in 1978-79 and the scope was subsequently enhanced to cover other
developmental sectors such as industries, thermal power projects, mining schemes
34
AIR 1999 SC 812
35
Ibid. at 820-21.
36
AIR 2000 SC 3751

8
etc. Prior to January 1994, EIA in India was carried out under administrative
guidelines, which required the project proponents of major irrigation projects, river
valley projects, power stations, ports and harbours, etc. to secure a clearance from the
Union Ministry of Environment and Forests.

On 27th January 1994, the ministry notified mandatory EIA under rule 5 of the
Environment (Protection) Rules of 1986 for 29 designated projects. The notification
made it obligatory to prepare and submit an EIA, an environment management
plan (hereinafter, EMP) and a project report to an impact assessment agency for
clearance. The Ministry of Environment and Forest was designated as the impact
assessment agency and was required to consult a multi-disciplinary committee of experts.

Under the January 1994 notification any member of the public was to have
access to a summary of the project report and the detailed EMPs. Public hearing was
mandatory. This requirement was India‟s first attempt at a comprehensive EIA scheme.

Environmental assessment is to be taken up in this exercise as a rapid

assessment technique for determining the current status of the environment and
identifying impact of critical activities on environmental parameters. Based on this
analysis the ministry can draw up an environmental management plan that
would ensure impact monitoring and mitigation planning.37

But most unfortunately these attempts to create a successful strategy for

commercial environmental compliance (through EIAs. in case of India) have been
unsuccessful due to the voluntary nature of existing guidelines and at the end of the
day they remain mere "soft law" recommendations.38

37
Available at http://envfor.nic.in/divisions/iass/iass.html Environmental Impact Assessment Division,
Ministry of Environment & Forests, Government of India. (Visited on: 07/11/07).
38
Sophie Hsia, “Foreign Direct Investment and The Environment: Are Voluntary Codes of Conduct and
Self-Imposed Standards Enough?” 9 Environmental Lawyer 673 (June 2003).

8
EIA process "Just another regulatory hurdle” after the changes in 1994
notification?

On 4th May 1994 the ministry issued an amending notification

substantially diluting the January 27th notification.
a) The amendment was introduced furtively, without pre-publication of the draft.
With these changes, the project proponent was 110 longer required to submit
'a detailed' project report (presumably, a summary report would do so) and the
previous requirement of preparing both an ELA and EMP, was diluted to now
require either of these documents to be submitted.
b) In the earlier notification the impact assessment agency (IAA) was enjoined to
prepare its recommendation after technical assessment of the documents and
data furnished by the project authorities as supplemented by data collected
during visits 10 sites or factories and in interaction with affected population and
environment group. The later notification states the need to supplement data
in purely optional terms.
c) In the earlier notification, the concerned parties and environment groups were
assured of receiving on request a copy of the summary feasibility report
along with the detailed environment management plans and the conditions of
which the environment clearance is given. The later notification made supply of
these documents subject to public interest.
d) Perhaps more invidious than the formal amendment to the parent notification,
was an administrative guideline styled as an 'Explanatory Note' which
was issued simultaneously by the Ministry of Environment and Forests. The
'Explanatory Note' restricted the public access to an 'Executive Summary' of the
environment impact documents and further narrowed access to „bonafide
residents located at or around the projects site or sites of displacement or alleged
adverse environmental impact'.
e) Moreover, the note diluted the comprehensive E1A Report requirement (covering
one year) to a single season report, termed as a rapid EIA Report.

8
 The main EIA notification has been amended seven times in the past eight years.
All these amendments instead of strengthening the process have diluted it to an extent
that it is now merely viewed by industries as a formality in the environmental clearance
procedures.39

Section 3 of the Environment Protection Act, 1986 (EPA) under which the EIA
notification has been issued. Authorizes the Central Government to take measures for,
"protecting and improving the quality of me environment and preventing, controlling
and abating environmental pollution”. Thus when the Environment (Protection) Rules,
1986 refers to the public interest it is obviously in that context. If that is the case, one
fails to see how these recent amendments serve the public interest.40

Right to Development vis-a-vis the Right to Clean Environment

Though there is no legally recognized right to development, this right limits the
application of the right to environment. 41

Probably, more than any other jurisdiction, India has fostered an extensive and
innovative jurisprudence on environmental rights.42 But EIA process has been seen
as anti-development and, therefore, not being implemented properly. And there have
been both practices and arguments either to counter the establishment of EIA procedures
or to avoid/evade them.

The dramatic surge of private investment capital into emerging foreign

markets, while assisting developing countries in the struggle for sustainable
development, has created greater pressures on the environment.43 The intense
competition for international capital contributes to the lack of adequate

39
Sunita Dubey, “Disarming the Law” (Dec. 2002) available at http:// www.indiatogether.org/
environment/articles/ eia1202.html (Visited 30/10/2007).
40
Ibid.
41
M.R. Anderson, Human rights Approaches to Environmental Protection: An Overview 19-20 (1996).
42
Ibid.
43
Sophie Hsia, “Foreign Direct Investment and The Environment: Are Voluntary Codes of Conduct and
Self-Imposed Standards Enough?” 9 Environmental Lawyer 673 (June 2003).

8
environmental regulation because of the fear of pricing out of international
investments, resulting in pollution havens and environmental malfeasance.44

Enron Project, Corporate Responsibility and EIA

Enron confirms the political implications of the onset of foreign involvement

in a country that has fiercely prided itself on self-sufficiency and a break from its colonial
past.45 The project gauges whether India's legal mechanisms for environmental
assessment, project approval, and dispute resolution can protect the country's natural
resources from being overrun by industrial development. 46

The project confirms the open economic policy for India and greater role of
corporate in economic setup of India. This venture became a controversial one, and
began to be criticized for no one outside the key negotiators of the deal knew how, or
why, Enron was selected for this power generation project. EIA had been introduced in
1994 with the environmental clearance notification and thus, Ministry's clearance to
Enron without evaluation of the project under the scope of the review (risk analysis and
public hearing) required by the notification was challenged in the Bombay High court.

When the court ordered to re-evaluate the action it became India's first foray into
the implementation of the environmental clearance notification. But in the process
principles of the clearance were not properly followed. The scope and substance of
India's environmental impact assessment procedures and their application to the
Enron project both falls short in many areas. Nevertheless, applying this evaluation to
a development project could be called a great leap forward for India, However,
beyond delay, the environmental suit was ultimately unable to substantially modify the
project.

44
Ibid.
45
Sanjay Jose Mullick, “Power Game in India: Environmental Clearance and The Enron Project” 16
Stanford Environmental Law Journal 256 (May 1997).
46
Ibid. at 260.

8
Sethusamudram (Ram Setu) Project and EIA

There is a proposed project of ship canal by the name of Sethusamudram

Shipping Canal Project, which claims to cut short the distance between east and west
coast. The area covered by the project has a delicate environment:47
The Gulf of Manna and the Palk Bay are considered to be among the world's
richest marine biological resources. The region has a distinctive socio-economic and
cultural profile shaped by its geography. It has 3,600 species of plants and animals
(including the endangered mammals like Dugongs and five species of sea turtles),
which make it India's biologically richest coastal regions. It is of course known for its
corals, which there are 117 species belonging to 37 genera.

It is believed that rushing through with the project without analyzing issues
related to sedimentation and meteorological regimes might cause a great economic
disaster in wake of tsunami that hit the region recently.48

The Sethusamudram project faced opposition for religious reasons recently but
it actually fails a more logical test i.e. of environmental clearance. Again,
disputed public hearing and an inadequate an incomplete environmental impact
assessment report make it an irresponsible initiative.49

EIA Notification 2006: Doubtful Attempts of Decentralization

On September 14, 2006, the Ministry for Environment and Forests (MEF) issued
a notification replacing the earlier EIA law, despite furious lobbying and campaigns by
environmental organisations and some Parliamentarians in the weeks preceding this
notification.50

47
http://www.cseindia.org/programme/industry/eia/sunderam.pdf (Visited on 20/11/2007).
48
R. Ramesh, “Is the Sethusamudram Shipping Canal Project Technically Feasible?” Economic and
Political Weekly 271-274, (Jan 2005).
49
Ibid. at 274.
50
BharathJairaj, “EIA 2006 leaves much to be desired” The Hindu (Sept 23, 2006). Available at
http://www.hindu.com/pp/2006/09/23/stories/20060923000 20100.htm

8
 In 2005 the Ministry of Environment and Forest published a note that the
environment clearance process shall be „re-engineered‟ and this was being thought as a
step towards bringing the improvements needed in the EIA process also. But when
the notification was issued in 2006,51 the law got further weakened. The major
difference in the new EIA Notification 2006 from the earlier one (1994) is its attempt to
decentralise power to the state government.52

The new EIA law categorises projects as A and B, for the purpose of clearance
by the centre or state respectively. While „decentralisation‟ effort is appreciated, the
banding over of the EIA evaluation responsibility to the state governments without any
system of checks and balances is unacceptable. In several projects, for example,
thermal power plants up to 500MW, state governments directly promote the project
and in fact, compete with each other to seek more investments.

The area where there could have been major improvements in

environment clearance process. i.e. public consultation, the new EIA notification is a
major disappointment. The public consultation as was earlier done will still be conducted
at the end of the environment clearance process where there is very little scope for the
public to play any active ro1e.53

The new EIA law also exempts several projects from the EIA process.
Construction projects less than 20,000 square meters and new townships less than 50
hectares, for instance. Are exempted from going through the EIA process. In its zeal to
implement the Govindarajan Committee recommendations to expedite the entry of

51
Available at http://envfor.nic.in/legis/eia/so1533.pdf
52
The terms of reference (ToR) of the project will now be decided by the State Environment Appraisal
Committee (SEAC) at the state-level and by Environment Appraisal Committees (EAC) at the central
level. The will be decided on the basis of the information provided by the proponent. If needed the
SEACs and EACs would visit the site, hold public consultation and meet experts to decide the ToR.
The final ToR has to be posted in the website for public viewing. Though this seems good on paper,
however, the proponent itself is providing the information for finalisation of ToR and moreover there
is no compulsory provision for public consultation. Further, if the EAC does not decide the ToR
within the stipulated time, the project proponents can go ahead with their own ToR. See,
http://www.cseindia.org/programme/industry/eia/ existing_notification.htm
53
http://www.cseindia.org/programme/industry/eia/existing_notification.htm

9
FDI into the country, the ministry has committed a serious mistake in prioritising time
limits over the "precautionary principle.

The focus of the new notification has been to reduce the time required for the
entire environment clearance process. There seems to be no justification for this and
may result in compromising on the efficiency and transparency of the clearance process,
which was quite evident from the earlier notification even though the process had more
time.54

Importance of Public Participation in EIA

An ideal environment clearance process requires that there are "frequent public
involvement provisions, full access to information, the right of appeal to an independent
third party, the full involvement of interested and affected parties and an explicit
decision making role for the public." Public participation deserves attention because the
degree of participation affects the quality of the environmental impact analysis process,
which, in turn affects the quality of the decision about a project.55

Broader participation creates more information and alternatives to be presented to

decision makers, enhancing the opportunity to mesh public values and government
policy.56 EIA is effective in providing local people with an opportunity to be heard and to
participate in decision-making that affects their environment. EIA facilitates democratic
decision-making and consensus building regarding new development.57

The public needs to be aware of the procedures for participation in environmental

decision-making, have free access to them and know how to use them. But the

54
The earlier process took around 14-19 months for rapid EIA and 21-28 months for comprehensive
EIA. As per the new notification, the category A project will be completed only in 10.5 to 12 months.
See, http://www.cseindia.org/programme/industry/ eia/existing_notification.htm
55
William A. Tilleman, “Public Participation in The Environmental Impact Assessment Process: A
Comparative Study Of Impact Assessment In Canada, The United States And The European
Community” 33 Columbia Journal of Transnational Law Association 337 (1995).
56
Ibid.
57
Nicholas A. Robinson, “International Trends In Environmental Impact Assessment” 19 Boston
College Environmental Affairs Law Review 591 (Spring 1992).

9
environmental public nearing (EPHs) process that began from 1997 in India fails to make
any necessary changes in the project. This is because industries violate the legal
provisions and go for hearing only after their projects have become functional and not
prior to it, as is mandatory.58

Years after they were first introduced, public hearings continue to be organized
with an extremely casual and token approach. In a public hearing for open cast mining
proposed in Bandurang (Jharkhand) on 25th February 2004, the EIA and environment
management plan were not made available prior to the hearing, clearly violating what
law otherwise mandates.59

EIA ensures good CER practice and is so far the most powerful and well-
known regulatory measure in India, But unfortunately EIA procedure in India remains
half-hearted. The principal flaw is that ministry has an inadequate machinery to monitor
whether or not the conditions are met. Due to the weak incorporation of it in the
legislation, there is little or no jurisprudence on the principle.

The first step should be to amend the project screening criteria to ensure
that EIAs are not limited to activities, which will affect the environment 'to a
significant extent' as is the common practice.

The EIA process must also be triggered where there is uncertainty regarding
the possibility of serious environmental impact. Although the parameters of
environmental uncertainty are elusive, particularly at the larger scale, guidelines could be
prepared to render this threshold operable. This is where more work on risk assessment
and uncertainty analysis needs to be undertaken.60

58
“How Public Are „Public‟ Hearings?” The Times of India, Ahmedabad (Jan 30, 2002).
59
Kanchi Kohli “An impacted assessment process” (Apr 2004). Available at www.indiatogether.org
http://www.indiatogether.org/2004/apr/env-eiarules.htm (Visited on 11/11/2007).
60
Warwick Gullett, “The Precautionary Principle In Australia: Policy, Law & Potential Precautionary
EIAs” 11 Risk: Health, Safety and Environment 93 (Spring 2000).

9
 To be sure, the EIA process can be contentious when countervailing interests
use EIA studies to emphasize their various positions. In a democracy, However,
it is better to have the reasoned examination of these contending views in the factually
informed context of EIA than to ignore them or treat them exclusively as political
views.61

Role of the Government in Promoting Corporate Social Responsibility

To be able to discuss the role of government in relation to CSR, the development

of an operational and measurable definition of CSR is important. To this end, the World
Bank has developed an operational term of CSR which considers CSR as the process of
managing the costs and benefits of business activity to both internal (i.e., employees,
shareholders, investors) and external (institutions of public governance, community
members, civil society groups, other enterprises) stakeholders. Setting the boundaries for
how these costs and benefits are managed is partly a question of business policy and
strategy and partly a question of public governance.

From the industrial revolution to recent years, social objectives have been almost
entirely the responsibility of government. Social movements, NGO activity and pressure
groups during the 70s and 80s led to the mobilisation of public opinion demanding from
corporations to demonstrate a socially responsible stance. Since the earlier twentieth
century, European member states have developed legislation to control the relationship
between employee and the firm, health and safety at work, issues of environmental
interest, discrimination and equal opportunities at workplace. Across Europe, state owned
companies were created to pursue commercial and social objectives, whereas private
sector companies were allowed to pursue their commercial objectives almost exclusively.

Legislation, regulation and taxation have been the favourable tools employed by
government to promote and protect social objectives. In the area of the environment,
„command and control‟ techniques have been favoured by the European Union since the

61
Nicholas A. Robinson, “International Trends In Environmental Impact Assessment” 19 Boston
College Environmental Affairs Law Review 591 (Spring 1992).

9
1970s whereas a shift towards 'shared responsibility' between government and industry is
another favourable policy approach since the mid 1990s.

Governments all over the world must enact laws to safeguard the interest of
consumers and to protect the environment from greedy and unethical corporations. These
laws must be tough and strict and more importantly lay down tough measures for
violations and prosecution. Consumers as well as the environment must be protected;
however, this must be built into the social responsibility role of organizations. The
advantages and other benefits that businesses derive from business policies made by
national or domestic governments are more often not enjoyed by business policies made
by foreign governments. Government's corporate social responsibility (CSR) policies
assist consumers and or organizations in the global markets, our aim is to evaluate
whether government regulatory polices differ throughout the world. Generally, politics
shape the regulation of businesses in the following ways:

1) Government business policies mandate that organizations operations shall not hurt
or harm society and the environment. Businesses shall be friendly to the society
and vice versa. To ensure that businesses abide by these policies, the government
enacts laws and regulations to monitor the conduct and operation of businesses In
addition, provisions are made in these regulations to punish violators of the
policy.
2) The second way by which politics shape the regulation of businesses is by giving
incentives and grants to businesses that comply with those government
regulations.
3) Finally, government regulates businesses to protect the interests of stakeholders
and shareholders. The absence of business regulation is not good for organizations
as well as the society; society will be misled, manipulated and exploited. It is
therefore the responsibility of the government to regulate business and more
importantly provide a level playing field for all businesses to operate and grow.
Governmental policies are designed to assist both consumers and organizations by
protecting consumers from unfair business practices as well as protecting the

9
 organizations from public interference and misconduct. There are no differences
in international environmental laws and policies. Studies show that environmental
laws and policies in the European Union are pretty much the same as those in the
United States.

Corporate- A Part of Society

A society cannot function without a set of values. Society is undergoing social

change. Business system is a product of customs and beliefs of the society in which it
exists. Ethical considerations decide whether the business is on par with the society‟s
needs. In today‟s recession in businesses world over survival itself is at stake and
corporate cannot afford to think of anything else but its products, customers, and
stakeholders. Therefore, it is imperative that corporate have to realign their priorities on
par with the societal needs. Accordingly, corporate are expected to be more ethical and
responsible. A corporation represents a mixture of diverse social interests belong not only
to the present living generations but also to the future including the generation which is
yet to come. It has enormous economic and social prowess.

Government’s Introspection Towards Society

Governance is an essential requirement for socio-economic development and for

overall inclusive growth. As such it is a matter of paramount importance for
governments, corporate and civil society at large. There are two main drivers which have
led to an integration of governance with Corporations. First, an increasing incidence of
unethical practices and debacles taking place in the corporate domain and secondly the
faces of deregulation, disintermediation, institutionalization, globalization and tax
reforms have made the minority shareholder more aware and powerful. Governments, in
a qualitative improvement of the product. This necessitates huge investment in research
and development, which government alone cannot afford. Accordingly, business
organizations should come out with liberal contribution for setting up research
laboratories for product quality improvement. In addition, business houses should shun
unethical practices such as price rigging of the product through hoarding and creating
scarcity, quality deterioration due to adulteration, and resorting to advertisements which

9
lead to formation of biased attitude. As business is now considered to be a part of social
order, it itself will determine its ethical standards through cross-current interactions. The
corporate sector is a key component of the socio-economic structure of any country and
principled and genuine corporate are fully aware of their social responsibility. The
Government, basically a political institution. Also has most of its institutions directed
towards social welfare.

According to Peter Drucker „The 21st century will be the century of the social
sector organization. The more economy, money, and information become global, the
more community will matter.‟ A business has a lot of responsibility to the community
around its location and to the society at large. In the changed environment, companies
have lot of opportunities to serve various stakeholders.

For the first time in the history of Indian corporate, the Central Government has
redefined the role of CSR. In the present era of stiff and intern‟s competition, it is
imperative on the part of corporate to generate and sustain goodwill among their
stakeholders and the community at large. Today, the stakeholders are intelligent and they
are aware of their various rights. They can file complaints easily in courts in case their
rights are wronged. Further, information technology has sharpened the skills of
stakeholders in the changed economic environment, corporate have greater responsibility
to society as a whole.

Some Judicial Pronouncements Pertaining to CSR

Indian Courts have already stressed the social character of companies on many
occasions. In Panchmahals steel Ltd v. Universal Steel Traders,62 the Gujarat High Court
pointed out that a company has a three-fold reality-economic, human and public. Againin
National Textile Workers’ Union P.R. Ramakrishnan,63 the Supreme Court emphasized
that a company is a social Institution with duties and responsibilities towards the
community in which it functions. It is assumed that social welfare of the people is the
sole two ways: by direct action through various schemes launched by it, and by

62
(1976)46 Comp. Case. 706, 718
63
AIR 750, 1983 SCR (3) 12.

9
encouraging others, including the corporate, to take the lead in some areas and share
some of the responsibilities of social welfare.

Triple Bottom Line

In traditional business accounting, the „bottom line‟ refers to the sum of revenue
minus expenses, which is either „loss‟ if negative, or „profit‟ if positive, the term
originated because profit is always shown as the very „bottom line‟ on a statement of
revenue and expenses. Over the last 50 years, environmentalists and social justice
advocates have struggled to bring a broader definition of „bottom line‟ into public
consciousness, by introducing full cost according. For example, if a corporation shows a
monetary profit, but their asbestos mine causes thousands of deaths from asbestosis, and
their copper mine pollutes a river, and the government ends up spending taxpayer money
on health care and river cleanup, how do we perform a full societal cost benefit analysis?

The concept of a triple bottom line (abbreviated as TBL or 3BL, adds two more
„bottom lines‟, namely, social and environmental concerns. The three together are often
paraphrased as „Profit, people, planet‟, of referred to as „the three pillars‟). With the
ratification of the United Nations and ICLEI, TBL standard for urban and community
accounting in early 2007, this became the dominant approach to public sector full cost
accounting. Similar UN standards apply to natural capital and human capital
measurement to assist in measurements required by TBL.

Government’s Initiatives Towards CSR

1) The Government of every country formulates and executes a set of policies

And programmes for the welfare of the society. These policies are executed through
legislation. Today there are so many laws that at every turn a business-man meets law;
modern businessmen need legal advice constantly. Modern business is more in the nature
of a legal contract than a social contract. The corporate sector is a key component of the
socio-economic structure of any country and principled and genuine corporate are fully
aware of their social responsibility.

9
 2) Policies of the Government are executed through legislative enactments, rules,
regulations, systems and procedure, policies, plans, guidelines, and directives that
constitute the politico-legal environment in which business has to find a way of existing
and flourishing. The Government shall encourage corporate to assume a participatory role
in schemes of social reforms formulated by the Government by offering suitable
incentives to them.

Corporate social responsibility means giving back to society what it gets from
society. Corporate social responsibility is about capacity building for sustainable
livelihoods. CSR means the obligation of companies to stress on their social, ethical and
environmental performance. The concept is broad enough to include things ranging from
excessive managerial pay, employee retention during downturns and disposal of effluents
to participation in community projects and funding of social causes. CSR refers to
companies taking account of the social and environment, and not just financial
consequences of their actions.

3) The Ministry of Corporate Affairs had released Voluntary Guidelines on CSR

in 2009 as the first step towards mainstreaming the concept of Business Responsibilities.
Keeping in view the feedback from stakeholders, it was decided to revise the same with a
more comprehensive set of guidelines that encompasses social, environmental and
economical responsibilities of business.

4) The National Voluntary Guidelines on Socio-Economic and Environmental

Responsibilities of Business brought out by the Ministry of Corporate Affairs have
encouraged the corporate sector in their efforts towards inclusive development. The
guidelines were released by the Ministry of Corporate Affairs on 8 July 2011. The
Central Government, through these guidelines are given in the form of nine principles
and core elements. These are enumerated below:

Principle-1: Business should conduct and govern themselves with ethics,

transparency and accountability

9
 Principle-2: Business should provide goods and services that are safe and
contribute to sustainability throughout their life cycle.

Principle - 3: Business should promote the well being of at employees.

Principle- 4: Business should respect the interests of and be responsive towards all
stakeholders, especially those who are disadvantages, vulnerable
and marginalized.

Principle- 5: Business should respect and promote human rights.

Principle - 6: Business should respect, protect, and make efforts to restore the
environment.

Principle- 7: Business, when engaged in influencing public and equitable

development.

Principle- 8: Business should engage with and provide value to their customers
and customers and consumers in a responsible manner.

Factors Affecting CSR

Having identified the activities related to social responsibility, the next agenda is
to look at the factors that may affect the extent and nature of CSR. Here it is look at the
factors both internal and external to the organizations that affect CSR.

Internal Factors

Any exploration of social responsibility and an organization‟s position on it

involves addressing the issue of values (Swanson, 1999). Value is a belief stated or
implicit-that affects the kind of choices that are made from the available repertoire of
choices (Kluckhon, 1951) Values, thus, have two components, the implicit and the
manifested. For our purposes we look at values as ideological and operational. The
ideological dimension concerns itself primarily with the values and beliefs of the CEO or
the top management team Studies have shown that the values of the top management

9
influence a firm's posture on social responsibility (Frederick and Weber, 1987; Guth and
Tagiuri, 1965). While a corporation is free to make its own choice on the route it wants to
take to become value based and socially responsible, the source of all activity is the
values and beliefs of the people who matter.64 Thus, the first determinant of CSR is the
values of the CEO/Top Management. The second dimension is operational which
involves the translation of these values into concrete measures and steps taken by the
organization. These values get translated into action through formal and informal
mechanisms. The formal mechanisms include issues like policy formulation,65 and
identification of structures and processes to accompany the policy.66 The depth and
details of these formal mechanisms is likely to influence the extent of CSR. The next
mechanism of value translation is the informal mechanisms of .acculturation, wherein the
culture supports and rewards the values of the organization through the process of
recruitment, selection, appraisal and career development. 67 Thus, the extent and nature of
CSR is likely to be affected by the company's policy, structure, processes and culture.

External Factors

Besides the values and their operationaizations, there are some features of the
external environment too that may affect the extent and nature of CSR activities by an
organization. Gruing (1970) identified public opinion as an important determinant of the
organization's response to social issues. Dewey (1927) identified three types of publics
latent, aware and active. Latent public does not recognize a situation as a problem; when
the group recognizes a problem it is an aware public, and when the group organizes to
discuss and do something about the situation, it can be called an active public. In the
context of the organization and its response to the various stakeholders, the nature of the
public would affect corporate social responsibility. The aware and active groups put
pressure on the organization to act and respond to some issues. The pressure from the
interest groups would be an important variable in the study of CSR.68 Finally, the second

64
Balasubramanian and Kimber, 2000; Chakraborty, 1996; Sivakumar and Rao, 1996
65
Buechler and Shetty, 1986
66
Holmes, 1977
67
Sehien, 1985
68
Ackerman, 1973. 1975; Murray, 1976 and Post, 1978

1
factor outside the organization considered relevant for studying CSR the role of the
government and its policies. The second external factor is the government policies. A
very general definition of the role of the government would be to serve the needs of its
people. As pointed out, there is a difference between the general public and the interest
groups. General public never acts in unison. Many distinct groups with their own special
interests often put pressure on the government. Governments may have different levels of
responsiveness to these groups. Thus, it is possible that the business and the other groups
of the society exert pressures on the government.

In a capitalistic society like the USA for a long period of time the government
restricted its role only to prevent the anti-competitive practices but of late has been
responding to other issues as well through EPA (Environmental Protection Act) and
OSHA (Occupation Safety and Health Administration). Besides, strengthening the legal
framework, the government can also support the social philanthropy through its taxation
and other policies. Till the Indian economy was liberalized, the state pursued socialistic
goals and through the public sector organizations, supported the social goals. With
economic liberalization, businesses are likely to pursue purely economic goals in an open
market economy. Thus, the government may not directly force a social role on the
business but it can act as a facilitator all the same. Government through us taxation and
other policies, through its legal and other arms can and does affect the business' posture
on social responsibility. Additionally, the pressures from the relevant stakeholder groups
may affect at one level the policies, structure and processes within the organization. At
another level it is likely to affect the policies of the government as well.

CSR and Historical Perspective Western Approach

The idea of CSR existed long before the term was coined. In the late 18th century,
Europe began to change from an agrarian society to an industrial society. Factories began
to sprout up all over England and Western Europe. With the growth of factories and the
need for workers, management began to face a new set of problems never previously
addressed. First, they had to pull in a work force from the country. To do this, the
factories ended up building towns for their workers. The factories provided their workers

1
with housing, roads and canals. Second, once they had a workforce, they had to change
the habits of employees unfamiliar with the strict structure required by a factory to
operate effectively. To combat the drunkenness, roaming, and illiterate children, the
factories provided education and supported churches to “change the moral codes of the
laborers outside the workplace.” For the factory owners, the need to provide for workers
was not based on an idea of responsibility; rather it was based on the real needs of the
factory and means of production.

Over a hundred years later, the formation of the Trust or Corporation became
popular within the United States. Companies like the conglomerate U.S. Steel begin to
grow. These companies were part of a new system of business based on stock and public
ownership. Ford Motor Company incorporated in 1903 with Henry Ford as a major
shareholder, and the Dodge brothers as minor shareholders. The Ford Motor company
was able to provide its shareholders with dividends and special dividends. In 1915, Ford
decided to change corporate policy, under which regular dividends would still be paid to
shareholders, but there would be no more special dividends, at. Instead, profits would be
reinvested in the corporation including building a new plant.

The late 1960s was a time of great “social unrest, perceptions of environmental
degradation, and protests over the Vietnam War.” There were general “populist
campaigns to redirect corporate power to solve looming social and political problems.” In
response, large corporations began to voluntarily redirect resources toward addressing
urban ills to keep it from becoming mandatory through legislation. “They redirected
charitable donations, started new employee training programs, targeted disadvantaged
populations, and promised to support a nascent movement for “black capitalism.”
Shareholders also supported the move toward greater CSR. The era saw greater use of the
shareholder proxy for social issues, which had been available since 1934

Meanwhile, the active legislature began to create different types of regulation to

address the problem. In 1970, Congress created the Environmental Protection Agency
and passed the Occupational Safety and Health Act. In 1972 they passed the Equal
Employment Opportunity Act which gave the previously established Equal Employment

1
Opportunity Commission litigation authority in its efforts to eliminate workplace
discrimination. Finally in 1977, Congress passed the Community Reinvestment Act,
which at the time sought to ensure that banks and financial institutions would provide
credit to persons in lower income communities.

Conclusion

The social responsibility of corporations had become normative by the 1990s

when general guidelines of CSR began to appear. Although academic literature promoted
a new “Progressive Corporate Law” that would require mandatory CSR instead of the
voluntary nature of CSR that was common up to that point.

***