UNIT 1 BUSINESS ETHICS : AN OVERVIEW

1.2 THE DISTINCTION BETWEEN BUSINESS ETHICS AND LAW

The Law is, at best, a common minimum acceptable standard in any civilized society.
However, some moral and ethical questions are not necessarily covered by the Law. One can argue that business
ethics begins where the Law ends.
Ex: recognizing women and LGBT rights in the workplace have led to new legislation.
Today’s ethical concerns are bound to attract government attention to introduce legal mechanisms.

1.3 RELEVANCE OF BUSINESS ETHICS

1. Business ethics education is more critical to sensitize prospective managers about the ethical
aspects of decision-making and emphasize stakeholder management.
2. Business ethics education helps sensitize managers about a firm’s legal and social obligations in
today’s complex world.
3. Meeting societal expectations is possible only when budding managers understand and
appreciate the nuances of stakeholder management.
4. Finally, business ethics education helps us to have a better sense of the numerous ways in which
managerial decision-making impacts multiple stakeholders.
5. Business ethics education equips the participants with better decision making skills and provides
skills beyond the workplace;
6. Business ethics education holds immense potential to enrich our personal and professional lives.
7. Business ethics education enables budding managers to be sensitive about the legal and social
obligations of the firm in unfamiliar ecosystems.

UNIT 2 CONCEPTS AND THEORIES OF BUSINESS ETHICS

2.2 TRADITIONAL ETHICAL THEORIES

There are two schools of ethical theories: consequentialism (teleology) and non consequentialism
(deontology).
Teleological theories are based on the consequences of the moral judgment we make and the actions we perform
in resolving ethical dilemmas.
Deontological theories advocate for judgement/actions based on a sense of duty and responsibility.
Example: Assuming a student in exam is tempted to cheat, what can be the moral reasoning to arrive at a moral
judgment? Consider a student’s reasoning that they should not be cheating because they can be dismissed from the
program, debarred from the placement process, or even rusticated. One can reason that this kind of ethical or
moral reasoning is teleological. The student doesn’t cheat due to the likely consequences rather than the conviction
that cheating is unethical. Suppose the same student reasons that irrespective of the results, they will not cheat
because they must be ethical in not cheating and securing better grades. One can say that their moral reasoning is
non-consequential or deontological.

2.3 TELEOLOGICAL ETHICAL SYSTEMS

Let us briefly examine some of the significant ideas of the teleological moral system.
1. Egoism
According to egoism, the decision maker’s short-term and long-term interests determine the moral
rightness of an action.
Ethical egoism example : It is in the self-interest of the manufacturer or service producer to deliver the
best possible quality of goods and services because satisfied customers are going to repeat the orders
due to the satisfaction, they derive from quality products and services. In such a case, better quality
products and services not only work in favour of the customers but are directly associated with the self
interest of the producer.

2. Utilitarianism
Human beings tend to follow those actions that give them more pleasure and avoid those that cause
pain. Here, cost-benefit analysis as the moral centre.
3. Distributive Justice
Ethical actions or decisions are those that lead to an equitable distribution of goods and services.

2.4 DEONTOLOGICAL ETHICAL SYSTEMS

Kantian Idea of the Categorical Imperative
The idea of ‘categorical imperative’ meant that one should propagate only those principles and take
recourse to only those actions and thought processes that they, as a rational agent, would prescribe as
universal rules and laws.

2.5 CONTEMPORARY APPROACHES

The following sections briefly describe these current approaches:

1. Feminist Ethics
Feminist ethics assumes that people have
different orientations regarding approaching and
organizing social life. Feminist ethics theorists
contend that most of the existing ethical theories
are based on the ethical orientations of men.
In the context of business ethics, the feminist
theory argues that organizational functioning in
business should be bereft(lacking) of gender
biases. They do not say for any preferences for
women workforce but argue for equal treatment
of the male and female workforces.

2. Discourse Ethics
Discourse ethics advocates the adoption of norms only after a thorough and rational
reflection of the impact of ethical conflicts on all the relevant stakeholders. Discourse ethics is dynamic,
unlike traditional ethical theories based on fixed norms.

3. Postmodern Perspectives
Post-modernist theorists argue that reality is too complex to be viewed from a singular lens. Everything
is relative. It calls for questioning the established norms and practices and following inner convictions
and the ‘gut feelings of the individual concerned.
2.6 LIMITATIONS OF EXISTING THEORIES
1. They fail to reflect complex business situations.
2. None of these theories have readymade answers to address the problems like gender biases in
the workplace and industry-specific ethical decision-making.
3. Economic systems are dynamic with no fixed set of rules and regulations. So they can’t be
applied solely.
 UNIT 3 ETHICAL DILEMMAS
3.2 ETHICAL APPROACH TO ETHICAL DECISIONMAKING
Structure of a decision problem comes from finding answers to the following questions:
a) What can I do in this situation? It involves exercising to determine the feasibility of exercising the
various possible actions open to them.
b) What outcome will the action have? This question involves engaging in a cost-benefit analysis of
the results of the action the subject decides to perform.
c) What is the Goal? This stage involves a certain sense of moral intent and moral will to execute a
specific action finally.

3.3 OVERCOMING ETHICAL DILEMMAS

Business ethics scholarship has summarized ethical decision-making dilemmas of managers by
mentioning five tensions
a) personal morality versus professional ethics,
b) individual welfare versus community welfare,
c) short term versus long term,
d) corporate need versus corporate greed, and
e) error in judgement versus arrogance.

3.4 ETHICAL NAVIGATION WHEEL AND OVERCOMING ETHICAL DILEMMAS

The following is a diagrammatic representation of the ethical navigation wheel.
1) Law (Is it Legal): If a manager faces an ethical
dilemma, one can begin by asking whether the
managerial action is legally acceptable. The
manager is obliged to fulfill the legal obligations of
the firm and ensure that
his actions do not violate the law of the land.
2) Identity (Mapping with Values): Different
professions can identify with a separate set of
values. managers need to map their decision-making
with the values of their industry.
3) Morality (Is it Right?): Morality is understood as
a set of beliefs and values developed over time by
experiencing in a particular social ecosystem. A
manager facing a dilemma needs to question
whether their decision-making is as per their morality.
4) Reputation (Impact on the Goodwill): Firms are very conscious of their
image in the public domain. Managerial decision-making should consider firm’s image.
5) Economy (Impact on Firm’s Profits): In managerial decision-making, the
most acute challenge for managers is to make the right kind of choices in
the face of dilemmas that compel them to choose between the corporation’s
profits and the optimal ethical outcomes.
6) Ethics (Challenge of Justifying): To justify the ethical choices, we need to scan our proposed
action through two principles, namely a) principle of equality and b) principle of publicity.
The principle of equality states that similar cases should be treated equally. The principle of publicity is
about the conviction that we can defend our actions in the public domain without any sense of moral
guilt.

3.5 LYNN PAINE’S CONCEPT OF MORAL COMPASS

Four-part ‘moral compass’ for guiding managerial decision-making.
1. The first frame expects managers to examine the following question a) Will this action serve a
worthwhile purpose? The basic idea behind this question is to make managers analyze the results in
both short- and long-term consequences.
2. The second frame asks: Is this action consistent with relevant principles?
3. The third frame deals with the consequences borne out of managerial activity. The manager needs to
ask: does this action respect the legitimate claims of the people affected?
4. This frame encourages managers to ask: Do I/ we have the power to act?
3.6 KIDDER’S ETHICAL CHECK POINTS
Kidder recommended nine-step checkpoints to tide over the complexities of ethical decision-making.
1. To have moral awareness/sensitivity to recognize the presence of a moral issue.
2. The subject is mandated to bear responsibility and needs to take a desirable action.
3. The concerned subject considers all the relevant facts before making moral judgments.
4. Determine whether the ethical issues are right or wrong.
5. The test for right versus suitable paradigms. The categories of these dilemmas are as follows a)
justice versus mercy, b) short term versus long term, and c) truth versus loyalty.
6. To apply checkpoints four and five, respectively
7. Encourages managers to move beyond dilemmas to trilemmas and exercise their ‘moral
imagination’ to
find out of box solutions.
8. and 9. Concern deciding and then following it up with revisiting and reflecting.

UNIT 4 ETHICS IN BUSINESS

4.4 ETHICS AT WORKPLACE AND ‘MORAL MUTENESS.’
Four distinct types based on the harmony or lack of it between organizational speech and action:
1. Some managers have complete moral congruence between what they speak and what they do in the
workplace.
2. Then some managers have amoral congruence between their speech and action in their professional
lives.
3. Who lack agreement between what they speak and what they do. These managers are hypocrites
who say moral but engage in amoral activities.
4. Managers who act morally but never speak about it : This managerial behavior where managers
avoid using a moral tone in their verbal interaction. This is MORAL MUTENESS. It leads to :-

a) Creation of Moral Amnesia,

b) Inappropriate Narrowness in Conceptions of Morality,
c) Moral Stress for Individual Managers,
d) Neglect of Moral abuses and
e) Decreased authority of Moral Standards
 UNIT 5 CSR : AN OVERVIEW

5.5 STAKEHOLDERS AND CORPORATE SOCIAL RESPONSIBILITY

As business expanded stakeholders have become strong drivers of CSR.
Customers and Business Responsibility
Consumers consider corporate social responsibility in their purchase and consumption behaviors.
Consumers care
about issues of corporate responsibility. This impacts their purchase and consumption pattern, and in
turn provides incentives for companies to be socially and environmentally responsible.

Government and Business Responsibility

Governments can encourage CSR to solve public policy issues, like unemployment, providing
vocational training, dealing with mental illness and social exclusion. Governments can facilitate CSR by
setting a framework to guide business behavior. It can be done by establishing code of conduct which
are non-binding in nature. Governments can initiate CSR as a tool to create mass employment.

NGOs or Civil Society organizations and Business Responsibility

NGOs have stepped into the regulatory vacuum created by the ineffectiveness of both national
governments and international institutions to regulate MNCs. Many NGOs have actively campaigned for
the inclusion of labor, human rights, and environmental standards in trade agreements.

Shareholders and Corporate Social Responsibility

Shareholders can be active driver of CSR by adopting shareholder activism. Shareholder activism can
take place by corporate engagement or dialogue (communicating with management on issues),
shareholder resolutions (filing or supporting shareholder proposals on social and environmental
issues), proxy voting (establishing policies for voting shares on social and environment) and divesting
shares (selling of shares).
Shareholders as social investors may include in their investment decision processes over and above
consideration of financial risks and return. It may be a combination of ethical, social, and environmental
issues.
Procedures of Shareholder Activism
Shareholder activists influence the behavior of a firm by exercising their ownership rights. There are two
main ways of exercising their rights:

- By preparing shareholder proposals which are voted on by all shareholders at the company’s annual
shareholders meeting.
- By entering a dialogue with the company’s management.
Case study
BP Amoco and Shareholder activism
BP Amoco shareholders have supported an agenda raised by shareholder activists concerning its
strategic positioning over climate change. A resolution was taken to halt BP’s North slope field in
Alaska. The Alaska subsidiary of BP pleaded guilty to prevent a crude spill across a swath of delicate
tundra region. It is one of the largest spill ever in the west.

5.6 CORPORATE CITIZENSHIP AND BUSINESS

Corporate citizenship is about the relationship that a company develops with its stakeholders. This
involves building good relationships with its stakeholders. Being good citizen basically means having
respect for each other. It can be also defined as legal and ethical responsibility that many corporations
owe to the society where they operate.
 UNIT 6 BUSINESS STRATEGY IN CSR
6.3 DIFFERENT APPROACHES OF BUSINESS STRATEGY FOR CSR
1. The Cost and Risk reduction – There are different types under this approach the trade-off
hypothesis, the available funds hypothesis or slack resources theory and enlightened value
maximization.
a. In the trade off hypothesis, it explicitly makes it clear the difference between the real role of the
corporate executives, i.e., to work for the firm, its employees and consumers and give up the idea of
working for social good.
b. The slack- resource theory assumes that when organizations are enjoying high financial
performance or have slack resources, they are ready to dedicate additional resources to CSR activities.
It implies that firms regard CSR as additional cost.
c. The enlightened value maximization focuses on long term corporate value maximization that
occurs through the appropriate management of trade-offs between stakeholders.

2. Competitive Advantage: Adapting and Leveraging Opportunities

There are several themes related to competitive advantage – the supply and demand theory of the firm,
base of the pyramid approaches, and natural resource- based view of the firm.
Availability of skilled and motivated employees, the efficiency of the local infrastructure, roads,
telecommunications, the size and sophistication of the local market, the extent of governmental
regulations have influenced companies to compete.

3. Reputation and Legitimacy: Rationales for business responsibility

Business strategy based on reputation and legitimacy is focused on exploiting CSR activities to create
value through gains from firm’s reputation. These approaches stress on business value creation by
leveraging gains in reputation and legitimacy by aligning stakeholder interests.
a. License -to-operate- Business organization
It focuses on the
importance of aligning business with stakeholder interests. Failure to meet stakeholder needs has a
negative impact on firm reputation.
b. Cause- Related Marketing and Business Responsibility
The social marketing concept holds that the organizations task is to determine the needs, wants and
interests of target markets and to deliver the desired satisfaction more effectively and efficiently than
competitors.

4. Creating value for multiple stakeholders

Creating value for multiple stakeholders can be approached through societal learning. The concept of
value- based networks describes how communities and social networks united by sense to create new
opportunities for mutual gain.

6.4 PROBLEMS IN BUILDING BUSINESS CASE FOR CSR

Problems may arise in business case of CSR. Problem may arise at the level of justification at the
organization and society, economic, ethical, and political.
Positive correlation between CSP and CFP indicates that commitment to CSR would increase costs in
competitiveness and lessen the hidden costs of stakeholders as good relations with employees,
suppliers, and customers. Creating reputation among stakeholders would give advantage over other
firms in form of
loyalty from employees, customer and suppliers.
The negative correlation between CSP and CFP may lead to implementing CSR will result in
competitive disadvantages to the business as the cost due to CSR activities will result in little gain if
measured in economic terms.
 UNIT 7 CSR IN GLOBAL CONTEXT
7.2 CSR AND INTERNATIONAL BUSINESS
CSR and international business are closely integrated to each other. Many business houses have adopted it as a
corporate strategy and some others have implemented it as a part of their philanthropic agenda.
Any CSR programme of an enterprise addresses the concerns of three main pillars of business:
A. Employees
B. Customers/consumers
C. Society

The importance of CSR in international business,

Two of the most important perspectives. The first perspective is the classical one which considers social
responsibility as incompatible with a free economy. No business should look beyond profit maximization. For
those who support the classical view, CSR and ethical questions in business takes a backseat.
Advocates of the modern view of CSR. No business should ignore its moral and ethical responsibilities towards
society.

7.3 CSR AND SUSTAINABLE DEVELOPMENT GOALS (SDGs)

CSR and Sustainable Development are closely connected. The GOI has unleashed its various initiatives and
policies in such a manner that it equally addresses the concerns listed in the SDGs. Without a close coordination
between the GOI, business enterprises and more prominently, the CSOs, the SDGs can never be driven to success.
With
this regulation, the companies in India are initiating the following changes over the
years:
A. At present a board level committee oversees CSR. As a result, this has helped the companies to shape CSR
policies for strategic goals and not for philanthropic purposes.
B. Second, about top 100 companies of India are aligning their CSR goals with national priorities set by the GOI.
For example, major national agendas such as health, cleanliness, safe drinking water are seriously prioritized by
top business corporations.
C. Thirdly, major business enterprises have largely consolidated their projects so as to have a bigger impact on
them. It clearly indicates that now enterprises are driven more towards result-oriented projects than scattering their
man and material on non-seriousness.
D. Fourth, for the last few years, the companies are aligning with social sector players such as the NGOs to
implement and solve CSR-related issues.
E. Finally, the mandated CSR regime has brought a new framework under which the companies are trying to come
in terms with emerging social issues.

7.5 CORPORATE SOCIAL RESPONSIBILITY AND CONFLICT

Today conflict has become an integral part of every society. CSR can play a significant role in containing conflict
and promoting harmony in all those war-ravaged zones.
There are numerous activities the businesses that work in conflict areas can initiate to carry out their trade like:
Undertake an extensive assessment of the needs and risks inherent in such areas of operation
Resolve disputes within communities constructively and rapidly.
Adopt international best practices in relation to the hiring of security professionals.
Shun providing funds or assistance to the armed groups.
Avoid being complicit with human rights violators.
Prohibit participation in bribery and corrupt actions.
Consult and communicate with local communities.

7.6 CORPORATE SOCIAL RESPONSIBILITY AND SOCIAL ACTIVISM

CSR and social activism are two sides of the same coin. Social activism in business has taken numerous forms.
Some of the dominant forms of such activism are:
a. Consumer activism
b. CSO activism
c. Shareholder activism
d. Employee activism
Consumer activism is an idea in which a group of people lobby to encourage what they as consumers feel is
appropriate behaviour for the business enterprises. It may be related to the nature of the product, how it is
manufactured and sold etc.
The organized pressure emerging from numerous civil society organizations (CSOs). It is regarded as the
‘Third Force’ of the society after the government and business.
Shareholder activism is an ideal way to influence the corporation’s behaviour by exercising the rights of the
shareholder.
Employee activism refers to collective or individual actions of employees who raise their voices for or against the
employer. Such activists adopt various methods such as social media campaigns, walk -outs, strikes etc.

UNIT 8 BUSINESS ETHICS AND CSR : LINKAGES

8.2 BUSINESS ETHICS
“Morality” refers to human conduct and values and “ethics” refers to the study of those areas. Ethics
set standards pertaining to what is good or bad in organizational conduct and decision making. It deals
with values that are a part of corporate culture and shapes decisions concerning social responsibility.

8.3 DIFFERENT PERSPECTIVES OF BUSINESS ETHICS

Business Ethics and Professional Codes
Professional codes are the rules that are supposed to govern the conduct of members of a given
profession. Generally, the members of a profession are understood to have agreed to abide by those
rules as a condition of their engaging in that profession.

Different Theories of Ethics

1. Egoism and ethical imperatives
Egoism associate’s morality with self-interest. It contends that an act is morally right if it promotes an
agent’s long-term interests. An act is morally right if and only when we can follow universal law of
conduct.

2. Utilitarianism
Utilitarianism holds that an action is right if it produces or can tend to produce the greatest amount of
good for the greatest number of people affected by the action. Utilitarianism provides a clear basis for
formulating and testing
policies.
Criticisms
a.Utilitarianism supports maximum happiness, but it may be very uncertain about the alternative course
of action.
b. Utilitarianism focuses on the results of the action, not on the quality of the action and no actions are
objectionable.

8.4 CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility is a combination of economic, legal. and ethical responsibilities. It is an
integration of corporate activities abiding by the legal regulations and going beyond compliance and
investing in human capital, environment, and the relations with stakeholders.
8.5 CSR AND BUSINESS ETHICS – DRAWING THE LINKAGES
It is a responsibility for the corporate houses to communicate to its employees all about the established
ethical practices.
1. Ethics issues and CSR
Ethical issues remain specific to industry, business’s policy making and management, community,
locality and country. These issues and problems vary from company to company. Some of the most
prominent ethical dilemmas encountered by the business organizations are prevention of child labour,
checking discrimination on the basis of race, caste, ethnicity, culture, maintaining safety at workplace
etc.
2. Responsibility and Environmental Protection
3. Preserving the environment It is wiser to prevent or minimize pollution to save the environment.
4. Responsibility and Consumer Safety
5. Responsibility and Product safety
6. Responsibility and Workplace Challenges
7. Responsibility of Health and safety of the employees
 UNIT 9 CSR IN INDIAN CONTEXT
9.2 CSR IN INDIA: HISTORICAL BACKGROUND
The Phases of Development of CSR in India
Phase 1 (CSR driven by Charity and Philanthropy): (1850 to 1914.)
CSR in the initial phase was driven by culture, traditions, family values, industrialization, and religion
(dan, seva). The merchants, driven by the purpose of committing themselves to the society for religious
purposes made huge donations for construction of temples.
Industrialization in India in the 19 th century by a few families like Tatas, Birlas, Godrej, Shriram,
Singhania, Lalbhai, Sarabhai, Mahindra, Modi.. These business houses were committed to CSR,
however also had motives such as business considerations.

Phase 2 (CSR driven by Social Development): (1914 to 1960)

This period was dominated by India’s struggle for independence.This period was greatly influenced by
Gandhi’s theory of trusteeship. Established family businesses had established trusts for building of
schools, colleges, scientific and training institutions etc. These trusts also involved themselves i n
various social causes initiated by Mahatma Gandhi.

Phase 3 (CSR in the Mixed Economy): 1960 to 1980)

The role of state in development increased greatly after independence. This phase was characterized
by emergence of several public enterprises. Several legislations on corporate governance, labour and
environmental standards also came into existence during this phase.
Phase 4 (Interface between philanthropic and business approaches): 1980s till the present day
During this phase, the companies started viewing CSR as a sustainable business strategy and started
adopting multi stakeholder approach.

9.3 MODELS OF SOCIAL RESPONSIBILITY OPERATING IN INDIA

1. The Ethical Model: This is based on the Gandhian Model of Trusteeship.
The philosophy of Trusteeship propounded by Mahatma Gandhi believes that the rich should use their
wealth for the welfare of the poor and the underprivileged. The business while being economically viable
should also uphold their ethical values to create sustainable livelihoods for all.
2. The Statist Model: This model came into being with adoption of socialist and mixed economy by J.L.
Nehru. In this model, the corporate responsibilities were governed by state ownership and legal
requirements. The Labour Laws and Management Principles had in them the basic elements of
corporate responsibility, particularly those related to community and worker relationships.
3. The Liberal Model: This model was propounded by Milton Friedman.
According to Friedman, the social responsibility taken up by the corporate distorts economic freedom of
the shareholders as they have no say in deciding how their money will be spent in these activities. He
argued that
corporations should engage in activities that would generate revenue and profit.: This model was
propounded by Milton Friedman.
4. The Stakeholder Model: The Stakeholder Model was propounded by Edward Freeman.
The theory argues that the company should be driven by the welfare of the stakeholder and not
stockholders alone. Stakeholders include shareholders, employees, consumers, suppliers, competitors,
related government agencies and local communities. Considers not just profit but also impact on major
stakeholders.

UNIT 10 CSR LEGISLATIONS AND POLICY GUIDELINES

10.3 APPLICABILITY OF CSR PROVISIONS AND THE ACTIVITIES LISTED OUT UNDER
SCHEDULE VII
A company satisfying any of the following criteria during the immediately preceding financial year is
required to comply with CSR provisions specified under section 135(1) of the Companies Act, 2013 :
(i) net worth of rupees five hundred crore or more, or
(ii) turnover of rupees one thousand crore or more, or
(iii) net profit of rupees five crore or more

Schedule VII lists outs the CSR Activities as follows:

(i) Eradicating hunger, poverty and malnutrition, promoting health care including preventive health care
and sanitation including contribution to the Swach Bharat Kosh.
(ii) Promoting education, including special education and employment enhancing vocation skills
especially among children, women, elderly and the differently abled.
(iii) Promoting gender equality, empowering women, setting up homes and hostels for women and
orphans; setting up old age homes, day care centres and such other facilities for senior citizens.
(iv) Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal
welfare, agroforestry, conservation of natural resources.
(v) Protection of national heritage, art and culture including restoration of buildings and sites of historical
importance and works of art.
(vi) Measures for the benefit of armed forces veterans, war widows and their dependents, Central
Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents
including widows.
(vii) Training to stimulate rural sports, nationally recognized sports, Paralympic sports and Olympic
sports.
(viii) Contribution to the PM National Relief Fund or PM Citizen Assistance and Relief Fund in
Emergency Situations Fund (PMCARES Fund).
(ix) Rural development projects.
(x) Slum area development.

10.4 CONSTITUTION OF CSR COMMITTEES

Section 135(1) provides that every company attracted by CSR provisions must constitute a Corporate
Social Responsibility Committee of the Board of Directors.

The composition of the CSR Committee is stipulated as under:

Listed companies :Three or more directors, out of which at least one shall be an independent director.
Unlisted public companies :Three or more directors, out of which at least one shall be an independent
director. However, if there is no requirement of having an independent director in the company, two or
more directors.
Private companies Two or more directors. No independent directors are required.
Foreign company At least 2 persons of which one person shall be a person resident in India authorized
to accept on behalf of the foreign company. The other person shall be nominated by the foreign
company.

10.5 CSR POLICY

CSR Policy elaborates the activities to be undertaken by the Company in alignment with the activities as
listed out in Schedule VII to the Act. In general, the CSR Policy contains a Statement detailing:
 The approach and direction given by the Board of Directors of a company based on the
recommendations of its CSR Committee.
 Guiding Principles governing the selection, implementation and monitoring of CSR Activities.
 Formulation of an Annual Action Plan.
NOTE :
1. CSR Activities shall not be the same as those undertaken by the company in its normal course of
business.
2. Contents of the CSR Policy is placed on the website of the company
 UNIT 11 CSR IN PUBLIC SECTOR UNITS (PSUs)
11.3 SOCIAL RESPONSIBILITY STRATEGIES
Business responses to social responsibility tend to fall within four categories:
(i) Social opposition, (ii) social obligation, (iii) social response, and (iv) social contribution. These positions fall
along a continuum, ranging from low to high levels of socially responsible behaviour.

11.4 SOCIAL RESPONSIBILITY

TOWARDS DIFFERENT GROUPS

11.5 SOCIAL AUDIT

Social audit as “a commitment to systematic assessment of and reporting of some meaningful definable
domain of a company’s activities that have social impact.
Features of Social Audit
1. The areas for social audit include any activity which has a significant social impact, such as activities
affecting environmental quality, consumerism, opportunities for women.
2. It can determine only what an organization is doing in social areas, not the amount of social good that
results from these activities.
3. Social performance is difficult to audit because most of the results of social activities occur beyond
the company’s gate and the company has no means of securing data on the results.

11.6 GLOBAL GUIDELINES TO PROMOTE CSR PRACTICE

The United Nations guiding principles on business and human rights are grounded in recognition of the
states’ existing obligations to fulfill human rights and fundamental freedoms, role of business enterprises
in a society to perform specialized functions and the need for rights and obligations to be matched to
appropriate and effective remedies when breached. These guiding principles apply to all states and to
all business enterprises, both transnational and others, regardless of their size, sector, location,
ownership and structure. These guiding principles are to be understood as a coherent whole and should
be read, individually and collectively.
The International Labor Organization (ILO, 2017), provides direct guidance to enterprises (multinational
and national) on social policy and inclusive, responsible and sustainable workplace practices. This is
known as ILO’s tripartite declaration of principles on multinational enterprises and social policy.
The Organization for Economic Co-operation and Development (OECD) established a set of guidelines
for multinational enterprises in 1976. The purpose of these guidelines was to improve the investment
climate and
encourage the positive contribution multinational enterprises can make to economic and social
progress.
Transparency is noted to be a crucial factor to enhance the economic, social and environmentally
responsible focus while conducting any business. Incentives to encourage CSR reporting such as
employee benefits have been focused on to encourage CSR reporting.

11.7 GUIDELINES FOR PUBLIC SECTOR ENTERPRISES

The revised guidelines came into effect from 1 April 2013 after 2010. The earlier guidelines focused
mainly on CSR activities for external stakeholders whereas the revised guidelines by the DPE also take
internal stakeholders, particularly employees, into account.
Guidelines on CSR for CPSEs, 2010
a. Concept
The guidelines introduce the term ‘triple bottom line’ specifying that corporate performance be
measured on parameters of economic, social and environmental impact.
b. Planning
The guidelines specify that CSR planning should be done in a way that it is relevant for the targeted
population, reaches the smallest unit depending on resource availability and capability, and should
match with the long-term business plan.
c. Implementation
For the purpose of implementation, the guidelines direct that implementation should be done through
specialized agencies and not by CPSE staff.
d. Research, Documentation, Advocacy, Promotion and Development
The guidelines provision for creating a CSR Hub which will work on compiling nationwide initiatives
leading to a database, conducting research and advocacy, preparing panels of implementing,
monitoring etc.
e. Funding
In 2010, the guidelines provisioned for calculation of the CSR budget using net profit as the parameter.
However, the guidelines only gave a percentage range for a different range of net profit unlike the
current provision of 2%. For companies having a net profit of less than 100 crores in the previous year,
the expenditure range for CSR in a financial year is specified to be 3-5%, for companies with a net profit
of 100-500 crore, the CSR range is 2-3% and for companies earning a net profit of 500 crore or more,
the specified CSR expenditure range is kept at 0.5-2%..
f. Clarifications
The guidelines clarify that they override any other direction in this regard by any other ministry or
department.
g. Baseline Survey and Documentation
Conducting a baseline survey before the start of every project is mandatory.
h. Monitoring
For the purpose of monitoring, the guidelines provision for creating a CSR committee or a social audit
committee and evaluation by an independent external agency is also mandated for.
 UNIT 12 CSR REPORTING PROCESS AND AUDITING
12.2 CONCEPT AND RATIONALE OF CSR REPORTING
CSR Reporting as Secret for Enhancing Brand Value Leading to Positive Business Growth.
Adopting and integrating sustainability in the business strategies and processes not only provides
businesses with an opportunity for their sustenance but also satisfies the changing interest of different
stakeholders in an ecosystem where the business operates.
Another motivation for businesses to adopt sustainable practices is in terms of enhancing their brand
value.
CSR Reporting as an Important Tool of CSR Communication.
Disclosure is the first imp. step for companies to show their commitment towards sustainability.
Transparency not only helps companies tell their story, but it also drives improvements in corporate
performance. It is the reason behind the popularity of CSR and Sustainability reporting.
Rationale of CSR Reporting
Corporate social responsibility or corporate sustainability reporting is a means for corporate disclosures.
Companies need to disclose to its stakeholders, the adverse impact they are making and potential risks
to society, economy and environment by their operations. Besides the adverse impacts, companies also
need to disclose
the remedial and preventive measures being taken by them in order to address issues arising out of
their operations.
These disclosures not only help companies to be competitive but also assist in:
Attracting investments
Value for shareholders
Value for business stakeholders
Attracting and retaining consumers/customers
Positive brand enhancement

12.3 PROCESS OF CSR REPORTING

Checklist before Preparing the Report
It is important to consider some aspects of a more general and fundamental nature before starting on
the actual preparation of the report such as :
(i) Objective of the Report
If the report is being prepared as prescribed by the law of the land, the reporting requirements are
obvious. Keeping the objective clear as per reporting requirements makes it feasible to prepare reports
more adequately.
(ii) Resources and Organizational Embedding
Allocating sufficient resources to the task of reporting is a key element in fulfilling the objective.
iii) Identifying Target Groups
Identifying the most significant stakeholders and target the report at them.
(iv) Method Definition
We need to determine how we want to go about the work on the report.

12.4 DIFFERENT REPORTING TOOLS AND TECHNIQUES

1. Frameworks of Reporting
Frameworks of corporate sustainability reporting are important tools helping organizations to develop
their sustainability reports. Some of the important frameworks are - global reporting initiative (GRI);
SIGMA project; DPSIR framework; the global carbon disclosure project (CDP); greenhouse gas protocol
(GHG Protocol).

2. Standards of Reporting
Various sustainability standards have been developed by different set of organizations including
intergovernmental bodies, standard organizations, consulting firms, etc., as per sector specific
requirements. There are several sector specific sustainability standards for business sectors such as
textile and apparel, automobile, agro-business, electronics, etc. Some of the common sustainability
standards are AA1000; SA8000; ISO 14001; ISO 9001; AS/NZS 4801; EMAS; OHSAS 18001.
3. Ratings and Indices of Corporate Sustainability Reporting
There are several ratings and indices developed by various organizations. Some of these are KLD;
EIRIS; SAM; Asian Sustainability Rating (ASR); Dow Jones Sustainability Index (DJSI); MSCI ESG
indices; FTSE4Good index.

12.5 CSR REPORTING PRACTICED BY LEADING COMPANIES

In India, as it is mandatory to report CSR initiatives according to the Companies Act, 2013 most of the companies
follow and report their initiatives based on the following parameters.
1. Reflections on CSR Policy
The Act mandates companies to formulate CSR policy. The policy needs to list projects/programmes it is planning
to implement, execution mechanisms, monitoring and evaluation framework and others.
2. Reflections on CSR Committee
The Act mandates that eligible companies must formulate a corporate social responsibility (CSR) committee. The
CSR committee needs to formulate and recommend the CSR policy to the board.
3. Disclosure on CSR in Director’s Report
As per the Act, eligible companies must disclose CSR related details in their director’s reports such as the
composition of the CSR committee, details about the policy developed and implemented by the company on CSR
initiatives.

12.6 CSR REPORTING UNDER THE COMPANIES ACT, 2013

Format for the annual report on CSR activities to be included in the Board’s report:
1. A brief outline of the company’s CSR policy, including overview of projects or programmes proposed
to be undertaken and a reference to the weblink to the CSR policy and projects or programmes.
2. The Composition of the CSR Committee.
3. Average net profit of the company for last three financial years.
4. Prescribed CSR Expenditure (two per cent of the amount, as in item 3 above)
5. Details of CSR spent during the financial year:
(a) Total amount to be spent for the financial year
(b) Amount unspent, if any
(c) Manner in which the amount spent during the financial year.
6. In case the company has failed to spend CSR amount, the company shall provide the reasons for not
spending the amount in its Board report.
7. A responsibility statement of the CSR Committee that the implementation and monitoring of CSR
Policy, is in compliance with CSR objectives and Policy of the company.

12.9 NEED AND SCOPE OF CSR AUDIT

Need of CSR Audit
A CSR audit is a management tool comprising a systematic, documented, periodic, and objective
evaluation of how well CSR organization, process and management are performing with the aim of
creating social value to stakeholders.
The advantages of such an exercise are not only assuring conformance/compliance with statutory
requirements but also reducing social risk and liability; and increasing efficiency and efficacy of CSR
projects.

Scope of CSR Audit

The output is the quantitative impact of the CSR activities carried out by the organization.
I. Audit for financial resources and utilization
if the CSR project was delivered within time, within estimated cost and with required quality.
II. Audit for compliance to the Companies Act and the CSR policy & business process of the
company
This will ensure that the system and process both under the Companies Act and under the corporate
plan, strategies and policies are complied with.
 (i) Compliance with the Companies Act
This covers the audit of compliance to processes identified in the section 135 of the Companies
Act.
(ii) Effectiveness of CSR policy
This covers the audit of the effectiveness of the CSR policy, whether it has given the desired
results.
(iii) Identification and formulation of CSR projects
The audit will cover the identification and the formulation of the CSR projects including defining
the output and outcome that it intends to achieve.
(iv) Institutional setup
The audit will cover the assessment of the deployment of suitable human resources and their
efficient utilization by the implementing agency.
(v) Data management
The audit will cover the adequacy of the data management system and the communication
system with the stakeholders and the beneficiaries.
(vi) Stakeholder engagement
The CSR projects are the only activity which a company does not plan for its own benefit but for
the benefit of communities which are its stakeholders.

III. Audit of outcome as per the project report

Social impact evaluation basically means the evaluation of qualitative impact of the community
development programmes carried out by the organization for the community.

12.10 AUDIT PROCEDURE

A systematic and well executed process of audit should clearly indicate the following:

i) Accountability as to how the funds have been used.

ii) It fixes accountability for tasks.
iii) Feedback in terms of targets achieved.
iv) Targets that have not been met.
v) Whether resources have been fully utilized or not.
vi) Clearly defined indicators that serve as concrete evidence for all future interventions.
vii) The shortcomings in the process.
viii) Changes to be made in the format, the process, the strategies, etc.
ix) Serves as a guide for development of future policies/interventions.

12.11 SELECTION OF AUDIT PERSONNEL

The audit should be carried out by qualified and experienced personnel who are not directly involved in
the day-to-day affairs of the factory.
The auditors should be well versed and experienced with the following:
i. Technical sectoral knowledge about the CSR projects like in education, water management,
community health, etc. including development indicators for the sector.
ii. Have knowledge about the NDGs and the SDGs.
iii. Have knowledge about the formulation, implementation, monitoring and review of projects.
UNIT 13 ROLES AND RESPONSIBILITIES OF CSR DEPARTMENT

13.2 FORMATION OF CSR DEPARTMENT AND CSR COMMITTEE

Every company with net worth of 500 crore or more
Turnover of 1000 crore or more
Net profit of 5 crore or more , should from a CSR committee.
The CSR Committee is responsible for the following:
1. Formulating and recommending to the board, a CSR policy which shall indicate the
projects/activities to be undertaken by the Company in areas or subject, as specified in Schedule
VII.
2. Recommending the amount of expenditure to be incurred on CSR projects/ activities undertaken.
3. Instituting a transparent monitoring mechanism for implementation of CSR projects/activities.
4. Reviewing performance of the Company in the areas of CSR.
5. Submitting an annual report of CSR projects/activities to the board.
6. Monitoring CSR Policy from time to time.

Responsibilities of the Board

The board strives to build sustainable value for shareholders whilst protecting the assets and reputation
of the company. Its functions include:
1. Approving CSR strategies, budgets, plans and corporate policies
2. Assessing performance against business plans
3. Ensuring that the Company operates an appropriate corporate governance structure, in particular
ensuring that CSR acts legally.

13.5 MAKE AND BUY DECISIONS

The make-or-buy decision is the act of making a strategic choice between producing an item internally
(in-house) or buying it externally (from an outside supplier). The buy side of the decision also is referred
to as outsourcing. In the context of CSR, ‘make’ means internalization of CSR i.e., all CSR activities will
be done by the company on its own while ‘buy’ means all CSR activities of the company will be done by
some outside agency.
The organization of Corporate Social Responsibility (CSR) initiatives deals with a ‘make’ or ‘buy’ trade-
off among in-house solutions instead of a partial (collaboration) or total (outsourcing) externalization of
such activities.
If the CSR activities are closer to the company’s core mission, then internalization is better.
If the CSR initiatives have less centrality to the company’s core mission, then the application of
governance forms involving a partial or a total outsourcing of these initiatives.
 UNIT 14 CSR AND SUSTAINABLE DEVELOPMENT
14.2 DEFINITION
Corporate sustainability implies that in order to sustain itself
companies should maintain its competitiveness and retain
profitability.
Sustainable Development is that meets the needs of the
present without compromising the ability of future generations
to meet their own needs.

TRIPLE BOTTOMLINE APPROACH OF CSR

Thus, the Triple Bottom-line approach aims to address the three dimensions of sustainable
development simultaneously. Moreover, any firm which is committed towards Corporate Sustainability
and CSR should consider the following principles.
i) Environmental principle - the rate of absorption of natural resources should be according to its
carrying capacity and renewability.
ii) Social principle - Companies should consider the human and social capital in the area of their
operation.
iii) Economic Principle - the company should be accountable to its shareholders and stakeholders.

According to the concept of strong sustainability the triple line approach is not sufficient to explain the
concept of sustainable development (SD) at firm level; therefore, there is a need to understand a new
approach called the hierarchical model.

HIERARCHICAL MODEL
Hierarchical model lays emphasis on prioritizing decisions based on scarcity of resources, resource
boundaries and exigencies of circumstances. Hierarchical model helps in prioritizing and facilitates
tradeoffs among different aspects of sustainable development.
For example, Montreal Protocol introduced phase out regulation of pollutants like chlorofluorocarbons
(CFCs) which caused depletion of ozone layer. The global ban on products emitting CFCs created
direct impact on industries, firms and employees, generating a tradeoff between ecologically friendly
approach, economic values and social issues.

Following conclusions about Corporate Sustainability can be drawn from these definitions: -
Firstly, corporate sustainability means that in order to sustain itself companies should maintain its
competitiveness thus preserving the firms’ entity.
Secondly, the firm should also retain its profitability.
Thirdly, Companies should assimilate into its business operations: sustainable processes, products and
procedures in order to include environmental and social dimension.