Capitalism with a human face

Since corporates have to draw on the community in which they operate for all resources, they also have obligations to their multiple stakeholders. But being socially responsible also makes good business sense.

Let me illustrate. In the United Kingdom more and more consumers are buying free-range eggs, now accounting for 35 per cent of sales, though they are 25 per cent more expensive than eggs laid by battery hens.

What is the difference? The free-range eggs are a result of more humane and ethical poultry practices. So the consumer is far more receptive to environmental and social issues than we think.

Many social activists are demanding reporting of CSR be made mandatory and include specific targets that can be measured, year on year. Corporates are expected to continuously improve their social, environmental and financial performance — the triple bottomline.

Though so far it has not been made compulsory (except in France), this is a big step towards corporates assuming greater responsibility for their policies and practices.

What is clearly expected of them is not only to brag about the positives in media releases and annual reports but also candidly report what has gone wrong, with a credible plan to limit or undo the damage.

Corporates will have to come clean. The ‘‘greenwash’’ mentality, where things are done just for appearances and statutory compliance, will not hold. It can eventually lead to a full-blown crisis — be it a devastating oil spill, a killer gas leak or a product recall crisis.

Critics of CSR argue meeting expectations of a wide range of stakeholders and complying with new monitoring and accounting systems raise costs, which will be passed onto customers.

They cite Body Shop, which became famous for its ethical and sustainable approach but has ultimately not prospered as a business. Are the critics saying business viability and CSR do not go hand in hand?

This is simply not true.

• Merck, the pharmaceutical giant, developed a treatment for a tropical disease called ‘‘river blindness’’ in layman’s language. It afflicts people in some of the world’s poorest regions. Despite having no commercial market for this drug in the West, Merck invested millions of dollars in developing it.

In 1987, in collaboration with the World Health Organisation. Merck organised free distribution of this drug. Around 25 million people a year are treated under this programme.

Doing this has in no way diminished the profitability of the company. It has only enhanced its reputation capital.

• Starbucks’ employee turnover is said to be less than a third of the retail food industry norm. This is attributed to Starbucks’ socially responsible practices, like violence prevention and violence victim assistance programmes, and its support to small coffee farmers.

So far I have spoken about CSR in general, but now I would like to specifically focus on India. Begin with the findings of a survey jointly conducted by the Confederation of Indian Industry, United Nations Development Programme, British Council and Price WaterhouseCoopers.

Labelled as the most ambitious attempt to capture the entire gamut of issues pertaining to CSR in India, the survey was carried out in September-October 2002. In all, 43 questions were posed to corporates. The findings are based on the responses of 102 companies:

• Respondents are in near unanimity that CSR is very much a part of the domain of corporate action and passive philanthropy is no longer sufficient. A significant portion of respondents recognise CSR as the means to enhance longterm stakeholder value.
• CSR creates a feel good factor about the company, increasingly instrumental in retention of talent.
• Distinct customer preference for companies with a social conscience.
• Increasing expectation of shareholders that their companies be sensitive to needs of society.
• Good corporate citizenship and CSR initiatives are directly linked with improved brand reputation.
• The second most important aspect of CSR, according to the survey report, is it provides an opportunity to improve relationships with local communities.
• Most companies do not have a systematic approach to CSR implementation.
• The survey felt industry associates have a critical role to play in shaping experiences and rewarding best practices. It suggested inclusion of CSR as a subject in business schools.

Let me mention two Indian corporates that have consistently demonstrated a high sense of social responsibility — Infosys and Wipro.

Infosys currently commits upto 1.5 per cent of its profit after tax to social and community causes, which include education, women’s projects, healthcare, community development and preservation of art and culture.

Wipro, through the Azim Premji Foundation, has dedicated itself to elementary education and runs 1,900 schools across India.

These are laudable efforts. But a lot more needs to be done by the corporate sector. It has financial and organisational muscle. In partnership with the government and NGOs it can make a significant and measurable contribution to our country.

India has chosen to define itself as secular and its rich diversity needs to be preserved. From time to time we have had communal violence, but recently it has been systematically whipped up.

When there is grave injustice, as happened in Delhi after Indira Gandhi’s assassination and in Gujarat recently, can corporates afford not to raise their voice? I make a distinction between individual acts of violence, terrorism and state-sponsored violence.

The two incidents I have mentioned above are where the state turned a blind eye to atrocities. Individual companies can be targeted by government and may buckle down. But can industry associations turn a blind eye to such injustice and assume that their role is only towards economic development and what happens in the social sphere is not within their purview?

We forget political parties need business support as much as corporates need their blessings. Instead of always trying to be on the right side of the party in power, can business associations do what is good for the country and not play safe all the time?

(The author is chairperson, Thermax Group. The article is an edited version of the A.D. Shroff Memorial Lecture she delivered, under the auspices of the Forum of Free Enterprise, in Mumbai on November 5)