Corporate Social Responsible - An Understanding

THE BUSINESS COMMUNITY is more than familiar with the financial collapses of Adelphia Communications Corp., Tyco International Ltd., Global Crossing, WorldCom Inc., FINOVA Group Inc., Enron Corp., and HealthSouth Corp. Each company failed amidst allegations of financial mismanagement, poor decisions, and a lackof oversight. But the reality is that the tangible aspects of financial collapse begin with a severe erosion and eventual ruination of corporate and personal ethics.

Business Ethics is what is missing in their management which led to their downfall leading them to bankruptcy and destroying the faith of all its investors. Agreed all Business have to prosper. But when that NEED turns into GREED thats when the unethical practices begin.

Most common reasons for the aboved mentioned companies to go into drains is beacuse of the human greed. They made use of the loopholes in the accounting systems by trying to inflate the revenues and reduce their debts in their books. Classic Case of cooking books is the Satyam, the Indian IT company .Most of the companies cook their books for keep their credibility in the market and the faith of the investors. This helps the firms to get projects and loans from the investors and institutions. But the problem occures when this manipulation is not rectified and the firm becomes more greedy . Eveything goes haywire in accounting systems. Companies fall. Investors fall. The economic system tumbles. 

Ethical issues is very controversial. Ethics means different for each person. How can Business ethics be practiced and instilled in each employees- from the lowest level to the managerial level? How it can be monitored? How much cheating is allowed in company (Well you can't deny that Business have to do some kind of hanky panky work to get things done.). If firm goes into bankruptcy who should to be blamed? Are Auditors too held responsible? Should the remianing employees be protected too? What about investors?

The questions are endless and the debate can go forever.

 These days due to globalization all the financial markets are interwined. Any problem in the one major company can have deep impact in the other countries too. The example for this is the lastest US recession which affect the entire global.

Thus its a very complex issue. But it has been tackled by various government and regulatory bodies to some extent around the world. A new concept CSR-Corporate Social Responsibility has come into Business world.

CSR is a form of corporate self regulation integrated into a business model. Ideally, CSR policy would function as a built-in, self-regulating mechanism whereby business would monitor and ensure its support to law, ethical standards, and international norms.(source: http://en.wikipedia.org/wiki/Corporate_social_responsibility)

CSR helps to make business practices more transparent . This put more faith in the firms. These days when foriegn companies want to invest in particular company ,they check how strong CSR is. Thus CSR has become absolutely important to attract FDI and faith of the investors.

It reduces the insider tarding to large extent. the investors grievances are looked after .Moreover it attempts to make the nearby society a better place by improving the health, education and infrastructure.

Having good accounting and audit Check. Keeping all records unmanupilative and making them out public.

Because of good corporate goverance even the work enviornment becomes easy and smooth. There is no work and personal ethic conflict. Building a genuine culture of 'doing the right thing' within a corporation can offset the risks of being scandalous and tarishing the reputation. These days Companies trying to use their strong CSR as Competetive Advantage as their USP. CSR can play a role in building customer loyalty based on distinctive ethical values. Several major brands, such as The Co-operative Group, American Apparel , Infosys, IBM , TOYOTA and more are built on ethical values.

What differentiates them with others is the strong systems and pratices put in place which doesnt allow the mal practices. Everything is transparent. They comunicate their values to their investors and public with the service and product they supply.

But there are criticisms to CSR too.Shell has a much-publicized CSR policy and was a pioneer in Triple Bottom Line reporting, but this did not prevent the 2004 scandal concerning its misreporting of oil reserves, which seriously damaged its reputation and led to charges of hypocrisy.Critics concerned with corporate hypocrisy and insincerity generally suggest that better governmental and international regulation and enforcement, rather than voluntary measures, are necessary to ensure that companies behave in a socially responsible manner.

Thus in the end what we can conclude is that no matter what policies , sytems and regulation are used , Business can still find loophole and fraud. Ethics as I mentioned before is something cannot be taught. But if Businesses ,while maximising their profits, considers their stakeholders and thier long time saftey then they will they definitely not indulge into mal practices that will hurt stakeholder sentiments.

Things that can be done to avoid companies to bankrupt

1. A Strong Accounting System with proper Audit checks

2. Two Types of Audit checks- Internal & External checks

3. External Audit to be changed every 3 years.

4. A separate department that deals with ethical issuse of any kind in the firm

5. Encouraging Whistle Blowers and Anonymity to be safeguarded

6. Having regular meeting with various stakeholders so that they are informed with internal matters and get their inputs too.

7. Making a Governmental Union that sets guidelines what is expected from the companies and the authority to check it.

8.Penalizing the companies that do not adhere to the guidelines.

9. A proper financial Reporting system that is communicates all the financial details to the investors.

10. Educating the employees about the CSR and all the ethical practices. Rewarding for ethical prctices and punishing the unethical behavior.

11. Implemetating CSR in all kinds of work in business. Making employees corporate citizens.

Well these are all general guideline which I think that can help forms to avert crises.

Cheers

RMN

Remin