Corporate social responsibilities

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CORPORATAE SOCIAL RESPONSIBILITY

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Corporate social responsibilities

  1. 1. CHAPTER – 1 INTRODUCTIONBackgroundIn recent times, the issue of corporate social responsibility (CSR) has been given a lot ofattention by both Dutch business and various stakeholders. Since the advisory report ofthe Sociaal Economische Raad (“Social Economic Council”, advisory board to the Dutchgovernment) “De Winst van Waarden” (“The Profit of Values”) it is broadlyacknowledged among government, business and stakeholders in the Netherlands, thatCSR is not about charity, but that it belongs to the core business of a company andtherefore should be an integral part of doing business. Companies are under increasingpressure from society to take their social responsibility. This is especially so if it concernscompanies with a business relation in a developing country, since these companies aremore confronted with CSR issues.CSR is a container concept which encompasses many different ecological, social andeconomic issues. In order to give a more specific interpretation to the concept of CSR aplatform of Dutch NGOs has composed a so-called CSR Frame of Reference. Aim of thisframework is to give companies a coherent overview of what NGOs define as CSR. TheFrame of Reference is mainly based on international treaties, guidelines and instrumentsenjoying broad international support that are relevant for business, such as human rights,labour rights, environmental protection, consumer protection, socio-economicdevelopment, corruption and other aspects of CSR. It also includes some fundamentaloperational aspects of CSR like supply chain responsibility, stakeholder involvement,transparency and reporting and independent verification.In order to validate the CSR Frame of Reference in an international context, the IndiaCommittee of the Netherlands (ICN or Landelijke India Werkgroep in Dutch) has
  2. 2. initiated a project on corporate social responsibility by Dutch companies in India. ICNhas asked CREM BV (Consultancy and Research for Environmental Management) toperform the research in the Netherlands and PiC (Partners in Change) to perform theresearch in India. CUTS (Consumer Unity and Trust Society) has commented on theFrame of Reference, this report and organised the workshop in India.The project was financed by the Netherlands Ministry of Housing, Spatial Planning andthe Environment (VROM) and the Dutch Interchurch Organisation for Development Co-operation (ICCO).Operational CSR aspectsDefinitionThe term ‘operational aspects’ is derived from the CSR Frame of Reference. It refers tothe following principles which a company should adhere to in order to fulfil its socialresponsibility and to give account about its practice:• Development of CSR policy• Supply chain responsibility• Stakeholder involvement• Transparency and reporting• Independent verificationSupply chain responsibilityIntroduction
  3. 3. The research showed that certain factors, either internally connected to the company orexternally, can be a barrier for companies to implement supply chain responsibility.Within the context of this project the first are called business factors and the secondexternal factors.Transparency and reportingTransparencyCompanies seem to be very concerned with the issue of adequate transparency towardsstakeholders, although it is only a very recent development. There are however manygrades of transparency and many companies are more transparent on intentions than onperformance and especially on shortcomings. Larger companies have in generaldeveloped a pro-active communication, thereby actively seeking contact with theirstakeholders. This is less so for the small companies. SME mainly inform the media orstakeholders on ad hoc basis.MediaMedia used for external communication are:• Brochures, Internet, publications (most companies)• Sustainability report (few MNCs)• Presentations at conferences and fora (most companies)• Formal complaint system (few companies)• Chat box on website to initiate and facilitate a public dialogue (one MNC)ConfidentialityA major bottleneck forms the dilemma between transparency at one hand andconfidentiality on the other. According to companies, confidentiality has twobackgrounds:
  4. 4. • Confidentiality with respect to clients. This is especially the case for banks, but playsalso a role with respect to project partners for other companies.• Confidentiality is deemed necessary to protect sensitive information from competitors.According to companies the boundaries between transparency and confidentiality aredifficult to define since it is very case related.ReportingReports on sustainability achievements are the latest development: most MNCs have juststarted publishing one or are in the process of composing one. The distinct ways in whichthe sustainability reports are composed makes comparison difficult for stakeholders.Most of the information has a very general character and quantified data are rare. None ofthe reports reveals the considerations the company makes in a specific case.None of the SMEs had a reporting system on sustainability issues. One SME, which isconsidering the development of a CSR policy, also intended to develop a reportingsystem in order to inform stakeholders on their CSR achievements.Social CSR aspectsIntroductionWithin the context of this project we define social CSR aspects as follows:• Human rights• Labour• Consumer protection• Respect for national sovereignty and local communities
  5. 5. These categories are derived from the CSR Frame of Reference. Since everycategorisation is always somewhat arbitrary, categories have been added when deemednecessary.Environmental CSR aspectsIntroductionWithin the context of this project environmental CSR aspects are categorised as follows:• General environmental principles, referring to• Principle of preventive action• Precautionary principle• Rectify environmental damage at source• Polluter pays principle• Greater environmental responsibility• Environmental friendly technologies• Biodiversity• Energy, material and water use• Emissions, effluents and wasteThese categories are derived from the operational CSR Frame of Reference. There is a lotof overlap between the general principles and the others.Paragraph 4.2 till 4.6 deal subsequently with the five environmental categories. At theend of this chapter a table is inserted with an overview of findings regarding allenvironmental principles.
  6. 6. Economic CSR aspectsIntroductionWithin the framework of this project, the term “Economic CSR aspects” is used. It maybe somewhat confusing since it does not refer to the profit aspect of business, like in theTriple P concept. It refers to aspects related to economic development of the host country.The aspects are derived from the CSR Frame of Reference and concern the followingissues:• Socio-economic development• Corruption• Competition• Taxation• Science and TechnologyAs mentioned in the CSR Frame of Reference, these principles have been incorporated ininternational standards, but are nevertheless still subject of discussion. The findings ofthis project might form a contribution to this discussion.Results workshopsIntroductionThe project was concluded with workshops in India (Mumbai, 21st November 2003) andin The Netherlands (Amsterdam, 12th December 2003). The objective of the workshopswas twofold:• To present the findings and conclusions of the research to all relevant parties, i.e. thecompanies participating in the research, relevant governmental organisations andstakeholders, such as NGOs, consumer organisations and trade unions.• To discuss possible solutions and make recommendations for follow-up activities.
  7. 7. Both workshops were well visited, although the participation of stakeholders was muchhigher than that of companies and governments. Several participants mentioned that thislimited the depth of the discussion since the workshops now presented too much the viewof stakeholders. Input from companies could have shed more light on the bottleneckswhich are highlighted in this project. Some stakeholders also felt that the lowparticipation of companies is an indication of their limited commitment to CSR.The set-up of both workshops was the same:• A presentation of the findings, in which CREM BV presented the findings andconclusions of the draft report and PiC gave an analysis of the factors that impact on theCSR policy and practice of companies (see paragraph 6.1).• A panel discussion on the findings of the report. In the panel both companies andstakeholders were presented.• Working groups which discussed several aspects of the findings. While the workinggroups in India focussed on the factors that impact on the CSR policy and practice ofcompanies, in The Netherlands the working groups discussed the different rolecompanies, stakeholders and governments should fulfil in order to improve the CSRpractice of companies.The following paragraph deals with the factors that impact on CSR (6.2). Paragraph 6.3discusses the outcome of the workshop in India and paragraph 6.4 the outcome of theworkshop in the Netherlands. For practical reasons only the main issues andrecommendations raised are incorporated in the report.
  8. 8. CHAPTER – 2 OBJECTIVES AND SCOPEObjectiveThe objective of the project was twofold:1. Analyse to what extent Dutch companies with direct activities, a supply chain orinvestments in India, have developed a policy on Corporate Social Responsibility (CSR),to identify good practices and potential bottlenecks in the implementation of such policyand to support companies in finding practical solutions.2. Initiate a debate between companies and different stakeholders in the Netherlands andIndia on CSR in the Indian context and on the roles that different actors could play in theimplementation of a CSR policy.The project focuses on positive examples and on (potential) bottlenecks and dilemmaswhich companies (may) encounter in India when they implement CSR principles in theirbusiness. The project aims to make the CSR Frame of Reference operational by lookingat the practical implications for companies. This project discusses the boundaries of theresponsibility of companies. This can give insight to what extent companies canimplement the standards of the CSR Frame of Reference and where other actors such asgovernments and NGOs can or should play a role. As benchmarking is not an objective ofthis research, the findings on the companies have been kept anonymous.Together with Dutch and Indian stakeholders, this research intends to identify practicalsolutions, e.g. by means of good practices. This approach is chosen to shed light on theIndian perspective on CSR in terms of practices of selected companies and stakeholderswhich have provided insight into such practices.
  9. 9. LimitationsIt is important to stress several limitations of the research method used for this project:• The project focuses on the whole range of CSR issues with respect to a broad selectionof business sectors. Since the project is limited in time and resources, it was impossible toperform an in-dept research into all these aspects for all business sectors.• Per business sector only one company is interviewed. It would be quite bold to drawgeneral conclusions on business sectors on the basis of one company. This can only bedone with the greatest caution.• The information gathered is based upon discussions with companies and stakeholdersand there has been only a very limited process of verification by PiC and CREM to checkon what has been told.• In order to obtain cooperation of companies, it was decided to make the selection ofcompanies anonymous. This makes it however impossible for outsiders to use companyspecific information for further action.• The fact that companies participate in the project is an indication that they are interestedin CSR. In general these are the companies that are already active on CSR or, at least,show a degree of transparency. It is therefore very likely that the findings in this reportgive a too positive image of Dutch companies in general.• The response to the survey was very low. Only one-third of the companies eitherreturned the survey or provided general information on their CSR policy. Somecommented briefly by phone. The reason for this low response was either no time,company could not be traced, company stopped its activities in India. Another reasongiven was that the Dutch company does not interfere with the business of the company inIndia, and therefore that company should be approached. This means that the findings inthis report are based upon information of only a limited number of companies
  10. 10. CHAPTER – 3 TYPES AND UTILITIESApproach and MethodologyThe project is divided into three phases. This report contains the results of Phase 2. Phasewise the different components and methodology are described:Phase 1: Definition• Establish a steering group• Make the CSR Frame of Reference operational (see paragraph 1.4)• Define the target group (see paragraph 1.5)• Identify relevant stakeholders (see paragraph 1.6)On the basis of its network ICN approached several NGOs and several ministries toparticipate in the steering group. This resulted in the following composition of the group:Ministry of Housing, Spatial Planning and the Environment, Ministry of Foreign Affairs,Ministry of Economic Affairs, Amnesty International, Centre for the promotion ofimports from developing countries (CBI), FNV (federation of trade unions), ICCO(Interchurch Organisation for Development Co-operation), Milieudefensie (affiliated toFriends of the Earth), Novib (affiliated to Oxfam), and SOMO (Centre for Research onMultinational Corporations). The selection of the companies (target group) took place onthe basis of a list of the Dutch embassy with Dutch companies operating in India and oninformation provided by SOMO about important sectors of imported productsfrom India. ICN consulted several Dutch and Indian NGOs to make a further selection ofcompanies and to identify the relevant stakeholders.The CSR Frame of Reference was made operational by CREM, ICN and SOMO and forthe Indian context by PiC.
  11. 11. The results of this phase were communicated to the steering group.Phase 2: Analysis• Inventory of CSR policy• Interviews in the Netherlands and India• Analysis of CSR policy and practice• Interim reportThe inventory of the CSR policy took place by means of a written survey (by CREM)among 40 Dutch companies that operate in India. Subsequently, interviews were heldwith a selection of nine companies in the Netherlands (by CREM), with their daughtercompanies or suppliers in India and with a large number of relevant stakeholders in India(by PiC).Phase 3: Stakeholder discussion• Workshop in India• Workshop in the Netherlands• Final reportThe two workshops had the objective to present the findings of the research, initiate adebate between companies and stakeholders on CSR in the Indian context and formulaterecommendations and follow up activities to overcome barriers with respect to theimplementation of a CSR policy in India.The workshop in India took place on 21st November 2003 in Mumbai. CUTS invited aselection of the daughter companies and stakeholders that have participated in the surveyand/or the interviews as well as a broader body of stakeholders.The workshop in the Netherlands took place on 12th December 2003. ICN invited theDutch mother companies who participated in the project and a broad selection ofstakeholders.
  12. 12. FrameworkThe analysis of the CSR policy and practice of Dutch companies took place on the basisof the CSR Frame of Reference, developed by a platform of Dutch NGOs. The CSRFrame of Reference is not so much used in this project as an instrument to judge thebehaviour of companies, but more a framework of understanding and a point of departurefor the dialogue between stakeholders. The principles in the Frame of Reference are to alarge extent derived from state obligations, like international treaties and agreements.This is reflected in the formulation of the principles: while some can be looked upon asstandards directly applicable to companies (e.g. in the field of labour rights), mostprinciples are formulated as open norms and need further elaboration to clarify theirimplications for the responsibility of companies (an example of such open norm is:“Companies should do whatever they can to promote human rights in those countrieswhere they operate”).Development of CSR policyDefinition of CSRTerminology
  13. 13. CSR is not a common term. One large company prefers sustainable development orsustainable business. Several Indian companies talked about responsible business orTriple P (People, Planet, and Profit).Dutch and Indian perception of CSRIt is important to note that Indian companies and stakeholders give a broader definition ofCSR then Dutch companies and stThis company refers in its definition of CSR tocommunity development. In the Western context community development is often seenas charity. In the Indian context it is seen as a large responsibility of a company, not onlyby stakeholders but also by the local Indian management. The background of this is thatstakeholders see the large western companies as capitalist islands in a developingcountry. This position gives them a certain responsibility towards the community. MostDutch companies leave room to their Indian daughter company to develop initiatives inthis field; sometimes they have a special fund. All kinds of initiatives are developed bythe interviewed Indian companies, many times bottom up initiated by the employees.Development of CSR policyThe operational CSR Frame of Reference mentions several aspects which play a role inthe development of a CSR policy.Assess CSR risksThis seems to be the first logical step to develop a CSR policy: companies should assesswhich CSR risks are at stake with respect to the company’s activities, its supply chain,the country and the region where it operates. CSR assessment should also relate to theimpact of the marketing of the product on the local market (see also paragraph 3.4).ActivitiesIt is not clear to what extent companies perform CSR impact assessments of theirproduction processes and their products, because not so much information is obtained onthis issue. It seems that companies that have not formulated a CSR policy have, amongothers, refrained from doing so because they are not aware of, or possibly ignore, the
  14. 14. CSR risks at stake. For companies that do have a CSR policy the development is acontinuous process, many times initiated by public pressure or requirements of clients.Supply chainCSR aspects related to the supply chain will be discussed in paragraph 2.3.Country and regionNone of the companies has developed a country specific CSR policy. The corporatevalues and principles which are defined at the headquarters are guiding. However,everyone acknowledges the need to take into account local culture and needs. Thereforethe management of the daughter company is free to develop further initiatives at locallevel.The involvement of daughter companies in the development of the CSR policy seems tobe quite limited still. Some daughter companies attribute this to the fact that they have notbeen located in India for such long time yet. Input from the daughter companies seemsnecessary in order to be able to continuously improve the CSR policy. Some Dutchcompanies do involve their daughters in sharing best practices. This is mostly done in thecontext of a sustainability report.Formulation of CSR policyMost of the MNCs have a CSR policy which is incorporated in a public document (calledbusiness principles or values, or code of conduct). Those SMEs which state they have aCSR policy usually have not incorporated it in a public document, or have formulated abrief statement.Most codes of conduct are formulated in general terms. None of them contain explicitcommitments. They are formulated as guidelines, intentions. Taken from the reactions ofcompanies two possible explanations for this are:
  15. 15. • According to companies it is impossible to cover all CSR aspects for all situations.Companies find it necessary to maintain a flexible approach, since CSR has to be tailor-made.• Companies fear the legal implications of explicit commitments. Some companies statethat their code is no contract.Supply chain responsibilityRelevant business factors1. Place in the chainA company at the end of the production chain is much more confronted withrequirements of retailers than a company at the beginning of the chain. It is likely that thecompany at the end of the chain will feel more compelled to fulfil its responsibility in thesupply chain.2. Business sector• In the food sector supply chain responsibility is much more evolved on the aspect ofconsumer protection. This is due to increased requirements of large supermarkets in thefield of food safety.• In the agricultural sector, where labour conditions and environmental issues in Indiagive sufficient rise for CSR awareness, there seems to be little attention from both theDutch mother company and the Indian company for CSR in the supply chain. Most ofthese companies work through a middle-man who has the actual contact with the farmers.The companies do not instruct him on CSR (apart from food safety and quality aspects),and consider CSR to be the concern of the middle-men and the farmers. They considertheir own responsibility to be very limited.• A bank indicated that its supply chain responsibility has a very distinct nature than thatof companies e.g. in the clothing industry. While the latter “only” has to look at the CSR
  16. 16. issues relevant for its own sector, banks are involved with many different sectors (andmany different CSR aspects) due to their financing activities. Banks consider this one astheir largest challenges, since their financing activities and the supply chains behind thatcan yield much more CSR benefit than in-company measures.3. Size of companyWhile several MNCs are working on product stewardship, SMEs are less involved withsupply chain responsibility. This can partly be contributed to the fact that a smallcompany has limited possibilities to exercise control within the supply chain.Furthermore, SMEs consider supply chain responsibility to be a matter of trust towardstheir suppliers. This attitude can easily be explained if one considers that in general theirnumber of suppliers is limited and they usually have a long time relationship. Above that,it is also a matter of insufficient pressure from their clients and stakeholders.Furthermore, SMEs feel mainly responsible for good quality of their product and less forthe production process through the chain and select their suppliers therefore on the basisof expertise and compliance with relevant EU product legislation. Interviewed Indiansuppliers confirmed this.4. Relation with company in IndiaThe Dutch companies have more impact and communication on CSR if the businessrelation is a daughter company than if it is a joint venture. But, as mentioned underparagraph 2.2.3, even in the relation mother-daughter company it is not always clearwhich part of the company bears the final responsibility to solve a certain CSR problemin practice.5. PricingThe price paid for a product influences the working conditions at production sites ofsuppliers.
  17. 17. Implementation of CSR in supply chainThe research did not demonstrate many examples of good practices of implementationmeasures to ensure supply chain responsibility.1. CSR standards in contractThe attitude of MNCs towards their business partners and suppliers is quite ambiguous.On the one hand they incorporate CSR standards in the contract or attach their code ofconduct to the contract. On the other hand they consider it to be the primaryresponsibility of their business partners to solve their own CSR dilemmas. The impact ofthese contracts is limited: these contracts do not seem to have the intention to imposeCSR standards on the suppliers, but are seen as a guarantee in the interrelation with thebusiness partner to fulfil these standards in their own production facilities. This impliesthat these contracts do not provide a guarantee for supply chain responsibility.2. Supply chain initiativesSome large MNCs participate in supply chain initiatives with suppliers and buyers, liketraining of partners, product stewardship, sharing and advising on best practices. Theseinitiatives seem to be limited. Some sector initiatives also involve supply chain aspects,like the initiative of the sector organisation of Dutch tour operators to develop andimplement a product-oriented environmental management system.3. Selection of suppliersSMEs mainly rely on a selection of trustworthy business partners and suppliers anddiscuss CSR issues, if at all, mostly in an informal way, e.g. in meetings or in response to
  18. 18. complaints from consumers. Their selection criteria are more based upon expertise andquality.4. Other methodsOther methods to promote CSR in the supply chain could be by providing information onthe CSR policy to suppliers and subcontractors, e.g. by providing documentation orinformation on the website, by providing training, etc.Social CSR aspectsHuman rightsDilemma human rights – legitimate role of businessThe issue of human rights forms a dilemma for companies. Those companies with a codeof conduct have incorporated respect for human rights in it. They see their responsibilityin this field however limited by the legitimate role of business, meaning that companiesshould not interfere with the politics of the (host) country.In order to get a deeper insight into limits or margins of the responsibility of companies,the human rights violations in Gujarat were brought forward as an example in aninterview with a large MNC operating in this state.7 This is an interesting case since onemember of the national council of the Confederation of Indian Industry openly spoke outon the issue of Gujarat and asked other businessmen to do the same.LabourGeneralAll companies pay attention to CSR aspects related to labour, but often selectively. LargeMNCs have incorporated specific aspects into their code of conduct. For SMEs theseaspects are part of their human resource policy. The Indian companies follow to a largeextent the policy of the mother company, with the exception that local standards are used.Consumer protection
  19. 19. SafetyIn general, companies pay a lot of attention to product safety and quality in order to fulfilrequirements of their buyers. Product safety is ensured through the supply chain, bymeans of audits and training.Right to informationInformation towards consumers seems to be mainly focussed on product information andto a much lesser extent on processesEnvironmental CSR aspectsGeneral environmental principlesEnvironmental policyEnvironmental principles are less specified in the CSR policy of companies than forexample social principles. Most codes of conduct simply refer to respect for environment.Their practice however shows that they do have implemented specific environmentalmeasures and that, as a matter of fact, environmental practice seems to be moredeveloped than social policy and practices, also among the smaller companies. Aplausible explanation is that a lot of environmental issues are regulated by law.Companies are therefore legally bound to implement measures. This also applies to theactivities in India. Indian legislation on environmental issues is also quite far developed,although several companies and stakeholders indicated that enforcement is a majorbottleneck.Environmental friendly technologies
  20. 20. The development and dissemination of environmentally friendly technologies is mainly aconcern of industrial companies. It is a prerequisite to stay competitive. Small companieshave fewer resources and knowledge to invest in environmental friendly technologies.In the development of new technologies companies are concerned about the position ofthe consumer and public, as is illustrated by the strategy on GMO.Companies see less potential in introducing biological products on the Indian market,because the market is considered too small.Technical innovation is not necessarily positive from an environmental point of view, ascan be demonstrated by the developments in the leather industry in India.Economic CSR aspectsSocio-economic developmentCommunity developmentCommunity development or involvement plays an important role in the Indian context. Inthe western context it would be called charity or corporate philanthropy, but in Indiacontribution to the local community is seen as a part of the corporate responsibility of acompany. Most Dutch companies leave room to their Indian daughter company todevelop initiatives in this field; sometimes they have a special fund. It seems thatdaughters of large MNCs tend to develop initiatives which are more connected to the corebusiness of the company or the interest of the employees. The ideas are often initiatedbottom up. SMEs, which are more controlled by the Dutch mother company, find itdifficult to find reliable NGOs and/or contribute to charities.CorruptionPolicyAll companies say that they have a policy on corruption, either written or more informal.Their anti-corruption policy includes avoiding both to pay bribes to publicofficials orbusiness partners and to demand bribes from others.
  21. 21. Fair competitionThe principle of fair competition is accepted by most Dutch companies. Practice in Indiaproves to be much more complicated. According to Dutch companies the Indiangovernment protects Indian companies through import- and export taxation. For foreigncompanies it is hard to bring new products on the Indian market.TaxationDeveloping countries try to attract foreign companies and investments by means ofexport promotion zones, where companies enjoy tax exemptions and other benefits. Dueto these tax exemptions developing countries miss out on a lot of income. Apparently,this amount equals the amount of money they receive in the form of foreign developingaid. Although the companies located in such export promotion zones are operating withinthe law, one can question the benefit for the host country.Science and technologyTransfer of science and technology is implemented in several ways:• Training of personnel• Developing partnerships• Setting-up networks• Participate in academic research• Advise to local governments• Seminars, workshopsFactors emerging from the research that affect CSRPiC gave a presentation on factors resulting from the findings which have an impact onthe CSR performance of a company. Several of these factors will need further research to
  22. 22. understand their full impact and to find solutions how these factors can positivelycontribute to the CSR performance of companies.1. Positioning CSR in the companyCompanies have different ways of positioning CSR in their company:• Business Principles: these are directly linked to business benefit and give more scopefor strategic processes to participate.• Ethical statement: this is directly linked to beliefs and indirectly to benefits. It givesscope to participate at various levels within the company (both management and workfloor). It is however difficult to find a direct link with the bottom line in the short term.• Reflected in practice: several companies had no written statement but indicated thattheir practice reflected their CSR policy. The risk occurs that the practice becomesinconsistent across different countries and segments of operations.In practice, all three are needed.2. Stakeholder engagementStakeholder engagement depends on two factors:• Strategy: Companies tend to engage with different CSR aspects separately, e.g. onenvironmental and community impact. Companies could have looked at these aspectscollectively, as the livelihood of the community and environmental issues are connected.• Whose point of view is considered: For example, in one company the women do theweeding, which is physical hard work according to western standards, and thereforemaybe less suitable for women. But the company says that according to Indian standardsit is more acceptable. The stakeholder met in this case can become an interesting casesubject in himself.3. Cost reduction
  23. 23. Cost cutting measures can have an impact on CSR. For example, one company became amember of an export promoting zone in order to claim duty exemptions and at the sametime choose to locate in a residential area to save on costs. It expected the same benefits(good infrastructure) as in the export promoting zone, but was pressured to pay bribes toavail this required infrastructure.4. Enterprise architectureApplying Porter’s Value Chain Framework10 it is observed that many of the surveyedcompanies in India have hived out supplies, equipment, construction and otherprocurement activities which constitute support to the primary activities11 in theirvaluechains. Viewed as a value chain system12, the Indian counterpart generally appearsthe have taken the form of a value chain system member which is not necessarily in theDutch company’s value chain, either because the Indian counterpart is a separate legalentity or because it pursues support activities. It fulfils in these instances for example therole of a supplier value chain and/or a channel value chain. Such an enterprisearchitecture can improve efficiency but can have an impact on CSR in different ways:• It reduces the direct responsibility of the company due to smaller value chains.• By means of outsourcing the value chain shrinks. Each value chain will optimise itsown profits.• The tendency to maximise profits in multiple chains can result in exploitation at theproducer’s end, given that costs of switching supplier, channel or buyer for a producer aregenerally low.5. Valuation of resourcesThe CSR practice of a company is affected by the way it valuates its resources, in twoways:• Classification related: one company valued the quality of the labour on its fields as farmlabour instead of plantation labour. The minimum wage for both these classes is different
  24. 24. in ratio 1:2, so the company valued the labour lower than it should have according to theworkers.• Externality related: ecologically unequal exchange occurs, when poor countries in thesouth export primary products (minerals, agricultural or forestry products) at prices whichdo not take into account the negative local externalities13 caused by the extraction of theresources or the production of the export commodities.6. Stage of life of business in the host countryThe CSR principles manifest themselves in different forms and with different intensitiesdepending on the stage of life of a business.14 This means that the company will have toevolve its responses to CSR claims of the stakeholders in the host country.7. Consumer behaviourThe way a company ‘selects’ its consumers affects its CSR policy. For example, acompany which produces for the cheaper segment claimed that it does not get enoughincentives from consumers to implement a CSR policy, because consumers are notalways willing to pay higher prices which would allow the company to compensate forhigher production costs.8. Situation in host countryThis may affect the CSR practice in three ways:• Expectation in the country: local NGOs expected a large Dutch company to play aleadership role in environment. The company however was not aware of this or did notwant to play this role in India at that stage.• Practices in the country: for example the occurrence of corruption in India or that ofinternal trade unions (a phenomenon which does not exist in The Netherlands).
  25. 25. Workshop in IndiaInput from the workshop participantsOperational CSR aspects• Accountability: A stakeholder mentioned that the focal point in the CSR debate shouldbe accountability of companies rather than responsibility.• Communication: A valuable aspect of this project is that it has lead to discussionswithin MNCs about CSR issues, because questions have gone up and down from motherto the daughter company and vice versa.• Stakeholder involvement: A discussion is necessary to find where differentorganisations such as consultancies and trade unions can strengthen each others’ work onCSR. Consultancies on their own can monitor companies’ behaviour but without inputand follow-up of trade unions it remains toothless. Trade unions and employees can makeuse of the technical expertise and more ‘objective fact finding role’ of consultants.• Business case: The business case for banks with respect to CSR is to a large extent theirreputation. They run a large risk if they invest in companies which contribute toenvironmental degradation and exploitation of labour. Therefore, the best protection for abank is to know its customers, i.e. the companies or projects they invest in and the peopleputting money into the bank.
  26. 26. • Business case: Companies should realise that costs are not a valid reason not to adopt aCSR policy. The costs will not be enormous, if one compares it for example with thecosts spend on advertising. Above that, the benefits will exceed the costs. It is a matter ofpriorities.• Policy development: The drivers for the CSR policy of foreign companies operating inIndia should be national, a bottom up approach from daughter to mother company isnecessary. The foreign company should not impose the legislation of its home countryupon India. On the other hand it is necessary that India brings its legislation in line withinternational requirements. Concerning the CSR policy certain CSR principles workacross countries; these are the so called core principles.• Implementation: CSR is so far a game of heroes and heroines, where mainly the conceptis being discussed. It has however not institutionalised yet.• Implementation: The focus in the CSR discussion is now too much on the value aspect(content of the principles), but the process if and how CSR is implemented in thecompany is much more important.• Implementation: If the mother company is willing to live up to its CSR obligations, bothof itself and those of the daughter company, and is ready to pay the price, the daughtercompany would follow. One daughter company in the food-processing sector mentionedthat its production costs are about 25% of the price that the parent ultimately earns.Undertaking CSR in its entirety would imply a tripling of production costs, which mightforce the mother to look for another country where production costs are lower. To avoidthis, there is a need for globally institutionalising CSR practices by the mothercompanies. One domestic group in India integrated CSR compliance with the use of thebrand name. Compliance can be at different levels and full enjoyment of the brand namecomes with the highest level of compliance.• Monitoring mechanisms: A trade unionist brought forward that CSR from the westernperspective entails the assumption that companies and consumers will regulate CSR.There is however no such evidence, and therefore a third way should be introduced:social regulation. Market mechanisms will not be sufficient in order to force companies
  27. 27. to comply with CSR standards. Even companies which claim to adhere to a code ofconduct do not have any process or system to implement the code, monitor it or have itverified. Therefore, social mechanisms are necessary, at par with the expectations ofsociety. From a labour point of view, this mechanism is provided by the right to organiseand collective bargaining. Because by definition there will be a conflict of interest amongdifferent stakeholders a political process is needed to develop such a social framework. Inother words, legislation is deemed necessary to ensure a balance for all concerned partiesin the CSR practice of companies.• Supply chain responsibility: The fact that no screening takes place of the supply chain,to a large extent due to the fact that the vendors are too small. The participants were ofopinion that it is necessary to differentiate between the mother and daughter relation onthe one hand and the suppliers on the other hand. A mother company cannot maintain ithas a CSR policy if it cannot get the daughter company to comply. The supply chain inIndia is different however, since one cannot expect that the small suppliers can live up tothe CSR expectations of civil society.• Verification: verification of compliance with the CSR policy is essential. This could bedone by a coalition of for example government, NGOs and trade unions.Social CSR aspects• Women: The position of specific disadvantaged/marginalised groups like women tendsto disappear in the debate on CSR. Their interests may conflict with those of othergroups, and therefore need to be specifically addressed.• Trade unions: A trade unionist pointed to the fact that the CSR discussion involves aconflict among stakeholders by definition. A company needs to address all but how can itrealise this? Workers could play an important role in the monitoring process. Many CSRmodels have been made but without participation of workers and trade unions. Aninternal instrument is necessary which involves the workers.
  28. 28. • Trade unions: The low participation of trade union in Indian daughter companies is amatter of concern. The company should implement a structure which enables the exerciseof the right to organise and collective bargaining.• Work security: The CSR policy of Dutch companies should also address the concept ofinformal labour in the Indian context.• Consumer protection: One stakeholder indicated that consumers in India get insufficientinformation. For example, there is no legislation with respect to imported food products.In practice, producers first export the product and then re-import it so it does not have tocomply with any rule. India is becoming a dumping ground for products which cannot besold elsewhere. Therefore, legislation is needed.• Consumer protection: Another hiatus in consumer protection in India is that althoughthere is a consumer protection act, many cases are in the consumer courts for years.• Consumer protection: If consumers should be educated on CSR it is not effective toapproach them on an individual basis. Transparency and communication is needed so thatconsumers know where the money goes.
  29. 29. CHAPTER – 4 CASE STUDYABSTRACTThis case is about Coca-Colas corporate social responsibility (CSR) initiatives in India. Itdetails the activities taken up by Coca-Cola Indias management and employees tocontribute to the society and community in which the company operates.Coca-Cola India being one of the largest beverage companies in India, realized that CSRhad to be an integral part of its corporate agenda. According to the company, it was awareof the environmental, social, and economic impact caused by a business of its scale andtherefore it had decided to implement a wide range of initiatives to improve the quality oflife of its customers, the workforce, and society at large.
  30. 30. However, the company came in for severe criticism from activists and environmentalexperts who charged it with depleting groundwater resources in the areas in which itsbottling plants were located, thereby affecting the livelihood of poor farmers, dumpingtoxic and hazardous waste materials near its bottling facilities, and discharging wastewater into the agricultural lands of farmers. Moreover, its allegedly unethical businesspractices in developing countries led to its becoming one of the most boycottedcompanies in the world.Notwithstanding the criticisms, the company continued to champion various initiativessuch as rainwater harvesting, restoring groundwater resources, going in for sustainablepackaging and recycling, and serving the communities where it operated. Coca-Colaplanned to become water neutral in India by 2009 as part of its global strategy ofachieving water neutrality. However, criticism against the company refused to die down.Critics felt that Coca-Cola was spending millions of dollars to project a green andenvironment-friendly image of itself , while failing to make any change in its operations.They said this was an attempt at green washing as Coca-Colas business practices in Indiahad tarnished its brand image not only in India but also globally. The case discusses thelikely challenges for Coca-Cola India as it prepares to implement its new CSR strategy inthe country.ISSUES» Analyze the CSR strategy adopted by Coca-Cola India.» Understand the issues and challenges faced by Coca-Cola with regard to itssustainability initiatives in India.
  31. 31. » Analyze the underlying reasons for the growing criticism against Coca-Cola in Indiaand explore ways in which the company can address this issue.» Understand the concept of green washing and discuss and debate whether Coca-Cola isserious about its water sustainability initiatives.KEYWORDSCorporate social responsibility strategy, Environmental responsibility, Economicresponsibility, Sustainability, Water sustainability, Water neutral, Water efficiency, 5pillar growth strategy, Stakeholder tension, Operations, Green washingINTRODUCTIONOn February 18, 2008, leading beverage company in India, The Hindustan Coca-ColaBeverages Pvt. Ltd (Coca-Cola India), was awarded the Golden Peacock award4 forCorporate Social Responsibility (CSR) for the several community initiatives it had takenand its efforts toward conservation of water. The award recognizes companies for theircommitment toward business, their employees, local communities, and the society. AtulSingh (Singh), CEO, Coca-Cola India, said, "Coca-Cola India has always placed highvalue on good citizenship and has undertaken several initiatives for communitydevelopment and inclusive growth.Keeping in mind the fact that it was one of the largest
  32. 32. beverage companies in India, Coca-Cola India said it had made CSR an integral part ofits corporate agenda.According to the company, it was aware of the environmental, social, and economicimpact caused by a business of its scale and therefore it had taken up a wide range ofinitiatives to improve the quality of life of its customers, the workforce, and society atlarge.Since the company used large amounts of water and energy in its beverage productionand tons of packaging material for its products, it had taken up several initiatives to act asa responsible company and reduce its environmental impact, it said. In addition to water,energy, and sustainable packaging, Coca-Cola India also focused on several communityinitiatives in India as part of its social responsibility initiatives...BACKGROUND NOTESThe Coca-Cola drink, popularly referred to as Coke, is a kind of cola, a sweetcarbonated drink containing caramel and other flavoring agents. It was invented by Dr.John Smith Pemberton (Pemberton) on May 8, 1886, at Atlanta, Georgia, in USA. Thebeverage was named Coca-Cola because at that time it contained extracts of Coca leavesand Kola nuts.Pemberton later sold the business to a group of businessmen, one of whom was GriggsCandler (Candler). By 1888, several cola brands were in the market competing againsteach other. Candler acquired these businesses from the other businessmen and establishedCoca-Cola in 1892...CORPORATE SOCIAL RESPONSIBILITIES INITIATIVES IN IINDIAEnvironmental Responsibility Initiatives
  33. 33. Environmental responsibility was a key aspect of Coca-Cola Indias CSR initiatives.Since Coca-Cola India was involved in beverage production, its operations affected theenvironment in many ways such as through excessive levels of water consumption,wastewater discharge, high energy consumption, discharge of effluents, and greenhousegas (GHG) emissions due to the use of refrigeration, vending machines, air conditioningequipment, etc...The 5 Pillar Growth StrategyIn August 2007, Coca-Cola India launched a 5 pillar growth strategy to strengthen itsrelationship with India...CRITICISMSThough Coca-Cola India claimed that it had taken several such efforts, it continued toattract criticism from several quarters. The company was censured for depletinggroundwater tables, leaving the local communities with no access to drinking water andwater for farming which was their primary source of income...COCA-COLA INDIAS RESPONSECoca-Cola opened an exclusive website, www.cokefacts.org, which addressed theallegations related to India and other countries. In another official statement, Coca-Colarebutted the charges against its bottling plant at Plachimada, Kerala.
  34. 34. The company said the plant was not responsible for the depletion of the undergroundwater table. It quoted a study conducted in October 2002 by Dr. R.N. Athvale, emeritusscientist at the National Geophysical Research Institute (NGRI), which had concludedthat there was no field evidence of overexploitation of the groundwater reserves in thearea surrounding the plant...OUTLOOKAs of February 2008, Coca-Cola India had carried out its CSR activities across 45bottling plants at an annual spend of Rs. 40 to 50 million on activities such as waterconservation management, health, and education. By February 2008, the company hadinstalled around 350 rainwater harvesting projects in several states of India...EXHIBITSExhibit I: Criticisms against Coca-Cola IndiaExhibit II: Coca-Colas Global Water Conversation GoalsExhibit III: Coca-Colas Global Community Watershed ProgramExhibit IV: Coca-Cola Indias 5 Pillar Growth StrategyExhibit V: A Photograph of Mass Demonstration against Coca-Cola at Mehdiganj on March 30, 2008Exhibit VI: List of Awards and Recognition Received by Coca-Cola IndiaExhibit VII: Print Ad of Coca-Cola Indias Little Drops of Joy Communication.
  35. 35. REFERENCEWhile working on this project I went through various websites.They are : 1. www.google.com 2. www.wikipedia.com 3. www.yahoo.com

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