Corporate Social Responsibility in Banks

Corporate Social Responsibility in Banks S. Kavitha[1] Abstract Corporate social responsibility stands for business contribution to sustainable development and covers company’s active participation in different fields, human rights, human resources, relations with clients, suppliers, and other stake holders, corporate governance, environment and contribution to community and society. The social responsible attitude is integral part of the identity of financial institutions like banks, and it is one of their distinctive features. The Reserve Bank of India has asked the banks to pay special attention towards integration of social and environmental concerns in their business operations. Many of the newly formed private and foreign banks are aware of the importance of such a step and therefore are having an active CSR department in their banks. This paper is an attempt to explain the concept of corporate social responsibility and the different CSR practices followed by banks in India. Key Words: CSR – Corporate Social Responsibility, Friedman’s View, Carroll’s View, Discretionary Responsibility Corporate Social Responsibility in Banks S. Kavitha[2] Introduction Corporate social responsibility stands for business contribution to sustainable development and covers company’s active participation in different fields, human rights, human resources, relations with clients, suppliers, and other stake holders, corporate governance, environment and contribution to community and society. The concept of social responsibility proposes that a private corporation has responsibilities to society that extend beyond making profit. Social responsibility is the way of life for most business organizations. It enables all such activities ranging from providing safe products and service to giving a portion of company’s profit to welfare organization. The social responsible attitude is integral part of the identity of financial institutions like banks, and it is one of their distinctive features. The Reserve Bank of India has asked the banks to pay special attention towards integration of social and environmental concerns in their business operations. Many of the newly formed private and foreign banks are aware of the importance of such a step and therefore are having an active CSR department in their banks. Concept of Social Responsibility: Corporate social responsibility is the sense of obligation on the part of companies to build social criteria in to their strategic decision-making. The concept implies that when companies evaluate decision from an critical perspective there should be presumption in favor of adopting course of action that enhance the welfare of society at large. The goals selected might be quite specific. To enhance the welfare of communities in which company is based. – To improve the environment – To empower employees to give them a sense of self worth. Different views on social responsibility Friedman’s Traditional View of Business Responsibility Urging a return to a laissez-faire worldwide economy with a minimum of government regulations, Friedman argues against the concept of social re sponsibility. Adam Smith and Milton Friedman, economists, according to them the only responsibility of business is to perform its economic functions efficiently and provide goods and services for society and earn maximum profits. By doing so business performs its economic functions and leaves the social functions to other institutions of society, such as the government. A businessperson who acts responsibly by cutting the price of the firm’s product to prevent inflation or by making expenditures to reduce pollution, or by hiring the hard-core unemployed, according to Friedman, is spending the shareholder’s money for general interest. Even if businessperson has shareholder permission or encouragement to do so, he or she is still acting from motives other than economic, in the long run; it may harm the society the firm is trying to help. Friedman referred o the social responsibility of business as ‘fundamentally subversive doctrine’ and stated that â€Å"There is one and only one social responsibility of business, to use its resources engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception of fraud. But this view is severely criticized on several grounds. On the other extreme, there is opposite view, which favors the position that it is imperative for businesses to be socially responsible. This is based on the argument that business organizations are a part of society and have to serve primarily societal interests rather than narrow economic objectives such as profit maximization. In doing so they have to deal with social concerns and issues and have to allocate resources for solving social problems. Carroll’s four responsibilities of business. Archie Carroll proposes that the managers of business organizations have four responsibilities Economic Responsibilities Economic responsibilities of a business organization’s management are to produce goods and services of value to society so that the firm can repay for its creditors and shareholders. Legal Responsibilities Legal responsibilities are defined by governments in laws that management is expected to obey. For eg, U. S. business firms are required to hire and promote people based on their credentials rather then to discriminate based on non-job-related characteristics such as race, gender or religion. Ethical Responsibilities Ethical responsibilities of an organization’s management are to ollow the generally held beliefs about behavior in a society. E. g. , Society generally expects firms to work with the employees and the community is planning for layoffs, even though no law may require this. The affected people can get very upset if an organization’s management fails to act according to generally prevailing ethical values. Discretionary Responsibilities Discretionary responsibilities are the purely voluntary obligations a corporation assumes. Examples are philanthropic contributions, training the hard-core unemployed, and providing day care centers. The difference between ethical and discretionary responsibilities is that few people expect an organization to fulfill discretionary responsibilities, whereas many expect an organization to fulfill ethical ones. Carroll lists these four responsibilities in order of priority. Social responsibility includes both ethical and discretionary but not economic and legal responsibilities. A firm can fulfill its ethical responsibilities by taking actions that society tends to value but has not yet put into law. When ethical responsibilities are satisfied, a firm can focus on discretionary responsibilities. The discretionary responsibilities of today can become the ethical responsibilities of tomorrow. E. g. , Provision of day care facilities, is moving rapidly from being discretionary to ethical responsibility. Benefits received from being socially responsible 1. Being known as a socially responsible firm may provide a company a competitive advantage. Programs to reduce pollution can actually reduce waste and maximize resource productivity. 2. Their environment concerns may enable them to charge premium prices and gain brand loyalty. (Ben & Jerry’s Homemade Inc. ) 3. Their trustworthiness may help them generate enduring relationships with suppliers and distributors without needing to spend a lot of time and money policing contracts. (Maytag) 4. They can attract outstanding employees who prefer working for a responsible firm (Procter & Gamble) 5. They are more likely to be welcomed into foreign country (Levi Strauss) 6. They can utilize the goodwill of public officials for support in difficult times (e. . Minnesota supported Dayton-Hudson’s fight to avoid being acquired by Dart Industries of Maryland) 7. They are more likely to attract capital infusions from investors who view reputable companies as desirable long-term investments (Rubbermaid). CSR in India India has been named among the top ten Asian countries who are paying an increasing importance towards corporate social responsibility (CSR) disclosure nor ms, a survey says. According to social enterprise CSR Asia’s Asian Sustainability Ranking (ASR), India was ranked fourth in the list, which was topped by Australia. The other countries in the list include China (second), Hong Kong (Third), Japan (fifth), Malaysia (sixth), Pakistan (seventh), Philippines (eighth), Singapore (ninth) and Thailand (tenth). The 2009 ASR list was dominated by Australian companies, with eight out of the top ten companies analysed coming from there, followed by India, the survey said. However, the report further said although there are increasing levels of disclosure in the Asian region, it still is generally poor compared with Europe and North America. In India we find surprisingly high levels of disclosure, particularly from large companies with recognised brands such as Tata and Infosys. Leading oil companies (such as ONGC and the Indian Oil Corporation) also have reasonable levels of disclosure,† the report said. CSR initiatives in banks The benefits of CSR for companies include increased profit, customer loyalty, trust, positive brand attitude and combating negative publicity. CSR strategies have been embrace d by the international banking community. 0 Major international private banks have signed the Equator Principles agreement which supports socially responsible development. (Eg of such banks are Citigroup, JPMorgan, Bank of America, ABN Amro, Barclays, HSBC and ING). Research suggests that dissatisfaction is the major reason why customers switch banks this arises mainly because of rising fee. Normally to get more favorable price, customers try to switch banks. Most of the customers have accounts in more than one bank so they find it very easy to compare the services and accordingly they do their transactions. So, customer turnover has become an important issue for the banks. The customer loss may have an adverse effect on bank market share and profit. So if the banks concentrate more on CSR and spent more for this that will create a good image for the banks which in turn will bring many new customers to the banks and also the customer loss can be reduced. RBI guidelines on CSR The Reserve Bank of India is now rooting for environment conservation and fair social practices. The central bank has asked banks to put in place a suitable and appropriate plan of action towards helping the cause of ‘sustainable development’, with the approval of their boards. Spurred on by the worldwide momentum in sustainable development and the initiative being taken on various fronts by different organisations, including all major banks globally, Indian banks have been encouraged to actively look at corporate social responsibility, sustainable development and non-financial reporting. Among banks in India, ABN Amro Bank was the first to put out a ‘sustainability report’ recently. It includes key indicators on the bank and its subsidiaries’ environmental (like paper, water and electricity usage) and social governance performance. Other companies, which issue sustainability reports, include ITC, Tata Tea, Dr Reddy’s and Reliance. Sustainable development essentially refers to the process of maintenance of the quality of environmental and social systems in the pursuit of economic development. Non-financial reporting is basically a system of reporting by organisations on their activities, which includes environmental, social and economic accounting. Best CSR practices in Banks – Some Examples SBI – State Bank of India Apart from the normal banking operations, the Bank, as a responsible and responsive corporate citizen, seeks to reinvest part of its profit in various community welfare projects to improve the quality of life of the poor, neglected, weaker and downtrodden sections of society. In the financial year 2007-08, the Bank made donations aggregating Rs. . 11 crore to various Relief Funds and also to NGOs / Trusts / Societies for their projects with social orientation. In recognition of its contribution to Rural Community Development, the Bank was awarded the prestigious Reader’s Digest Pegasus Corporate Social Responsibilities Award 2007. Infact, it was the only Bank to have received this recognition. Under a new scheme named ‘Adoption of t he Girl Child’ over 8,300 poor girl children have been adopted by various branches throughout the country to meet their personal and educational expenses. This is not merely a financial assistance scheme but offers emotional and psychological support to the ‘adopted girls’ due to the active involvement and care of the SBI Ladies Clubs. From the Research and Development Fund, the Bank has so far extended Rs. 6. 61 crore as research grants to 71 chairs / research projects at various Universities and Academic institutions. For the current year SBI has extended 100000 Sterling Pounds to London School of Economics for establishing an India Observatory and I. G. Patel Chair at their Asia Research Centre in participation with RBI. ICICI Foundation An example for CSR practices by banks is the ICICI foundation. ICICI Bank runs a very active and well known foundation in India but there is no clearly visible link of the ICICI Foundation on the website. ICICI is also very active in its support of government programs to improve the livelihoods of people. ICICI Bank has joined hands with NGOs to reach out to children in ten states helping them have better access to education Standard Chartered Bank The HIV/AIDS pandemic is a global challenge faced by Standard Chartered as a business. In different developing countries HIV has a significant impact and they respond to this programme through Living with HIV programme, , a global policy aimed at protecting basic human rights, promoting the health of their employees and keeping the business costs associated with HIV/AIDS to a minimum. The programme is well established and focuses on the following areas: †¢Raising awareness with their employees through training Educating local people about the prevention and treatment of HIV †¢Strengthening their position as thought leaders in HIV/AIDS †¢Sharing their knowledge with other organisations Standard Chartered, which happens to be one of the country’s largest international banks, is involved in real partnerships with local community organisations, involving active participation of its employees in their community projects. It is the human face of banks. Or what is call ed corporate social responsibility, the new term devised for the social service that companies do with some of their profits. The global community programme of the bank is called ‘Believing in Life’. Part of this is the internal initiative ‘Living with HIV’. An extension of the programme in Africa, it seeks to create awareness about this deadly disease and thus help prevention by educating all its staff across the different countries from where the bank operates. Banks like HDFC, SBI, ICICI, HDFC, Standard Chartered Bank are now active in a host of areas including primary education, women empowerment, rehabilitation of poor, and aged environmental issues Future of CSR The Corporate Social Responsibility has increased in importance around the world. The world becomes a global village in the information technology era. Sharing and accessing of information become very easy. All big companies are expanding their business opportunities all over the world. Simultaneously the CSR activities also expanding speedily where company initiatives started. Now these days every company feels CSR is unavoidable and responsible thing. Moreover companies allocating separate budget and deploying professionals for CSR initiatives. It shows that it is emerging as a powerful thing in social development sector. The Corporate Social Responsibility (CSR) is high on every corporate agenda. Social commitment is an essential part of every company. Corporate social responsibility involves the aspiration to make a positive contribution to the progress of the company and society. If a company initiates CSR wing the company concerned need to work hard consequently on a formal, coherent and transparent policy in this field. Then only the CSR will become a potential area for development of the society. Conclusion The rapid information technology innovations are changing the face of Corporate Social Responsibility. The concept of CSR is still debatable in democratic countries. There is a major criticism in all over the world is corporate companies are utilizing this concept to build their business expansion. Through this concept corporate companies are liaison and lobbying with higher bureaucracy in the government to get permissions/licenses to their companies easily. Many companies are getting tax exemptions by carrying out these social development activities. The increased awareness of CSR has also come about as a result of the United Nations Millennium Development Goals, in which a major goal is the increased contribution of assistance from large organizations, especially Multi-National Corporations, to help alleviate poverty and hunger, and for businesses to be more aware of their impact on society. There is a lot of potential for CSR to help with development in poor countries, especially community-based initiatives. CSR can be very much useful for the financial institutions like banks to get good reputation in the society. Banks should do the CSR activities to the fullest benefit to the society and not just for the sake of doing it. References Sen, S. , Bhattacharya, C. B. , Korshun, D. (2006), â€Å"The role of corporate social responsibility in strengthening multiple stakeholder relationships: a field experiment†, Journal of the Academy of Marketing Science, Vol. 34 pp. 158-66. Bhattacharya, C. B. , Sankar Sen and Daniel Korschun (2008), â€Å"Using Corporate Social Responsibility to Win the War for Talent,† MIT Sloan Management Review, 49 (2), 37-44; â€Å"The Good Company†, The Economist (2005-01-20). Retrieved on 2008-25-07 Financial Express, Wednesday, Oct 28, 2009 at 1541 hrs IST http://www. karmayog. org/csr501to1000/csr501to1000_21878. htm http://www. csbanking. com. au/ http://economictmes. indiatimes. com/News http://www. deccanherald. com/deccanherald/july202004/spt9. asp; http://www. financialexpress. com/fe_full_story. php ———————– [1] S. Kavitha, MBA,MCA. ,MPhil. ,NET. , Asst. Prof, MBA, Vivekanandha Institute of Information & Management Studies, Tiruchengode, Namakkal Dt. , – 637 205, Research Scholar, Anna University, Coimbatore Phone:99421-60277, email: [email  protected] om [2] S. Kavitha, MBA,MCA. ,MPhil. ,NET. , Asst. Prof, MBA, Vivekanandha Institute of Information & Management Studies, Tiruchengode, Namakkal Dt. , – 637 205, Research Scholar, Anna University, Coimbatore Phone:99421-60277, email: [email  protected] com ———————– Economi c Legal Ethical Discretionary (Must do) (Have to do) (Should do) (Might do) Social responsibilities