Case Study - CSR (Companies Act 2013)

QUESTION

Growmart, a grocery and general merchandise store and the global retailer has more than 5000 retail units in 20 different countries. In 2017, Growmart was caught using child labour in a developing country X-Land. At the end of year, media made public the news that Growmart was using child labour at two factories in X-Land. Children aged 10-14 years old were found to be working in the factories for less than $50 a month making products of the Growmart brand for export. The company had zero tolerance policy for underage workers and ceased business with the two factories immediately and alleged that despite its effort to inspect all factories, it is difficult to enforce its own corporate code of conduct with thousands of subcontractors around the world. Now, on the basis of advice from an NGO from country X-Land that if Growmart cuts business with these factories, many workers could be laid off for lack of production, suppliers will hide abuses and workers will not tell the truth to auditors in order not to lose their jobs; Growmart resumed operations with two factories after giving warning that if underage workers were found or the company did not make corrections, the factory would be permanently banned from Growmart's production.

The Growmart has a strict corporate code of conduct in the industry but according to investigations Growmart is not able to enforce its code in developing countries. Thus, Growmart changed its zero tolerance child labour policy due to NGO advice. Now, instead of immediately cutting business relationships with suppliers hiring up to two underage workers, they receive a warning and are obliged to take corrective measures for the next audit. Only when the supplier has hired more than two underage workers and has not corrected the situation does Growmart permanently terminate business relationships.

This new policy was adopted in order assure that suppliers report the reality of working conditions. Also, Growmart requires its suppliers who produce toys in China to sign up to the ICTI CARE Process. The ICTI CARE Process was created by the international toy industry to achieve a safe and human working environment for toy factory workers worldwide. In addition, Growmart conducts internal validation audits by Growmart's Ethical Sourcing team.

These validation audits ensure that the ICTI CARE process is properly implemented and that it meets Growmart's Standards for Suppliers. Growmart has updated policies against discrimination. Its GRI Report emphasizes gender equality, a diverse workforce and appointing women to top management positions.

The report even dedicates a separate paragraph on ‘Empowering women at Growmart'. Based on the above case:

(a) Explain the concept of CSR and why successful companies like Growmart should adopt CSR in its strategy of growth?
(b) Explain triple bottom line approach of CSR.
(c) Highlight the factors which affect CSR with the examples from the given case.

ANSWER:(a)

Being a good corporate citizen , Business entity is expected to undertake those activities, which are essential for betterment of the society. Every aspect of business has a social dimension.

Corporate Social Responsibility means open and transparent business practices that are based on ethical values and respect for employees, communities and the environment. It is designed to deliver sustainable value to society at large as well as to shareholders.

Corporate Social Responsibility is nothing but what an organisation does, to positively influence the society in which it exists. It could take the form of community relationship, volunteer assistance programmes, special scholarships, preservation of cultural heritage and beautification of cities. The philosophy is basically to return to the society what it has taken from it, in the course of its quest for creation of wealth. With the understanding that businesses play a key role of job and wealth creation in society, CSR is generally understood to be the way a company achieves a balance or integration of economic, environmental, and social imperatives while at the same time addressing shareholder and stakeholder expectations.

CSR is generally accepted as applying to firms wherever they operate in the domestic and global economy. The way businesses engage/involve the shareholders, employees, customers, suppliers, Governments, non-Governmental organizations, international organizations, and other stakeholders is usually a key feature of the concept. While an organisation's compliance with laws and regulations on social, environmental and economic objectives set the official level of CSR performance, it is often understood as involving the private sector commitments and activities that extend beyond this foundation of compliance with laws.

Essentially, Corporate Social Responsibility is an inter-disciplinary subject in nature and encompasses in its fold:

• Social, economic, ethical and moral responsibility of companies and managers,
• Compliance with legal and voluntary requirements for business and professional practice;
• Challenges posed by needs of the economy and socially disadvantaged groups, and
• Management of corporate responsibility activities.

Even successful companies like Growmart should incorporate CSR because it is very important strategy as wherever possible, consumers want to buy products from companies they trust;

i) suppliers want to form business partnerships with companies they can rely on;
ii) employees want to work for companies they respect; and
iii) NGOs, increasingly, want to work together with companies seeking feasible solutions and innovations in areas of common concern.

Growmart's reputation had gone down because of employing child labour. The company adopted CSR approach towards the issue and gave warning to the supplier instead of immediately cutting business relationships with suppliers. Thus, CSR is a tool in the hands of corporate like Growmart to enhance the market penetration of their products, enhance its relation with stakeholders. CSR activities carried out by the enterprises affects all the stakeholders, thus making good business sense, the reason being contribution to the bottom line.

The social responsibility of business can be integrated into the business purpose so as to build a positive synergy between the two.

• CSR creates a favourable public image, which attracts customers.
• It builds up a positive image encouraging social involvement of employees, which in turn develops a sense of loyalty towards the organization, helping in creating a dedicated workforce proud of its company.
• Society gains through better neighborhoods and employment opportunities, while the organisation benefits from a better community, which is the main source of its workforce and the consumer of its products.
• The company's social involvement discourages excessive regulation or intervention from the Government or statutory bodies, and hence gives greater freedom and flexibility in decisionmaking.
• The good public image secured by one organisation by their social responsiveness encourages other organizations in the neighborhood or in the professional group to adapt themselves to achieve their social responsiveness.
• The atmosphere of social responsiveness encourages co-operative attitude between groups of companies. One company can advise or solve social problems that other organizations could not solve.

Answer (b)

TRIPLE BOTTOM LINE (TBL) is based on the premise that business entities have more to do than make just profits for the owners of the capital, only bottom line people understand.

"PEOPLE, PLANET AND PROFIT" is used to succinctly describe the triple bottom lines.

• "People" (Human Capital) pertains to fair and beneficial business practices toward labor and the community and region in which a corporation conducts its business.
• "Planet" (Natural Capital) refers to sustainable environmental practices. It is the lasting economic impact the organization has on its economic environment. A TBL company endeavors to benefit the natural order as much as possible or at the least do no harm and curtails environmental impact.
• "Profit" is the bottom line shared by all commerce. The need to apply the concept of TBL is caused due to –

(i) Increased consumer sensitivity to corporate social behaviour Growing demands for transparency from shareholders/stakeholders;
(ii) Increased environmental regulation Legal costs of compliances and defaults Concerns over global warming;
(iii) Increased social awareness;
(iv) Awareness about and willingness for respecting human rights;
(v) Media's attention to social issues;
(vi) Growing corporate participation in social upliftment

While profitability is a pure economic bottom line, social and environmental bottom lines are semi or non-economic in nature so far as revenue generation is concerned but it has certainly a positive impact on long term value that an enterprise commands. But discharge of social responsibilities by corporates is a subjective matter as it cannot be measured with reasonable accuracy.

The current generation people are well aware of what goes on around them. People today know a lot about environment, how it affects them, how things we do affects the environment in turn. For the aware and conscientious consumers today, it is important that they buy products that do not harm the environment. They only like to deal with companies that believe and do things for the greater good of planet earth.

Answer (c)

MANY FACTORS INFLUENCE CSR ACTIVITIES OF COMPANIES

• Globalization: Growmart was a global company and supplier's activities in some other developing part of the world made it to change its policy and work together with suppliers. Thus, focus on cross-border trade, multinational enterprises and global supply chains is increasingly raising CSR concerns related to human resource management practices, environmental protection, and health and safety, among other things.
• Governments and intergovernmental bodies, such as the United Nations, the Organisation for Economic Co-operation and Development and the International Labour Organization have developed compacts, declarations, guidelines, principles and other instruments that outline social norms for acceptable conduct. In the given case advise of NGO was important factor in changing the CSR policy of Growmart.
• Advances in communications technology, such as the Internet, cellular phones and personal digital assistants, are making it easier to track corporate activities and disseminate information about them. Non-governmental organizations now regularly draw attention through their websites to business practices they view as problematic.
• Consumers and investors are showing increasing interest in supporting responsible business practices and are demanding more information on how companies are addressing risks and opportunities related to social and environmental issues.
• Numerous serious and high-profile breaches of corporate ethics have contributed to elevated public mistrust of corporations and highlighted the need for improved corporate governance, transparency, accountability and ethical standards.
• Citizens in many countries are making it clear that corporations should meet standards of social and environmental care, no matter where they operate.
• There is increasing awareness of the limits of government legislative and regulatory initiatives to effectively capture all the issues that corporate social responsibility addresses.
• Businesses are recognizing that adopting an effective approach to CSR can reduce risk of business disruptions, open up new opportunities, and enhance brand and company reputation.

CONCLUSION

The corporates are nowadays considered as Corporate Citizen and stakeholders expect them to follow rules, regulations and other social welfare statutes of the land same and applicable to the citizen of India. They are using resources such as human, economic, governmental, social and natural to earn profit.

DISCLAIMER: The case study presented here is only for sharing knowledge with the readers. The views are personal, shall not be taken as professional advice. In case of necessity do consult with professionals for more understanding and clarity on the subject matter.