February 3rd, 2009Trust and Corporate Social responsibility: Lessons from India
Chief Executive Officer, Genesis Public Relations Pvt. Ltd.
Founder & Principal, Genesis Public Relations Pvt. Ltd.
“On action alone be thy interest,
Never on its fruits.
Let not the fruits of action be thy motive,
Nor be thy attachment to inaction.“
- Bhagavadgita, Chapter 2
Spirituality and Corporate Social Responsibility have had a deep-rooted connection in India.
A phenomenon that has preceded the coining of the term ‘CSR’, the link between the ‘karma’ as espoused by sacred Indian texts and initiatives anchoring corporates as responsible citizens has been amply evident in India since the early days.
This is widely divergent from the perspective of corporate social responsibility in Western economies as reflected in the observation by Arthur Page, vice president of public relations at AT&T for around 20 years and former advisor to the US President:
“… all business in a democratic country begins with public permission and exists by public approval ….”i
Viewed from this perspective, public relations professionals are the custodians of trust for the corporate world. While the global spotlight today focuses on debates on corporate trust, India can proudly flaunt a head start in this arena.
Yet, before we present India’s case, let’s briefly scan some recent happenings, particularly in the US, that led to an erosion of trust in Corporate Inc. worldwide.
Erosion of Trust in Corporate Inc.
The turn of the millennium has witnessed mammoth bankruptcies, accounting scandals and obstruction of justice allegations. The consequent tarnishing of gilt edged names like Enron, WorldCom, Xerox, Arthur Andersen, Kodak, to name a few, has had widespread ripple effects in the corporate world. Yet news continues to pour in…
KPMG, the big accounting firm, agreed to pay $200 million in suits arising from audits of Rite Aid and Oxford Health…
Bristol Myers, the pharmaceutical giant, inflated sales by $2.75 billion in 1999-2002. The National Association of Securities Dealers (NASD) has charged an executive of CSFB with fraudulent allotment of hot IPOs to 300 of his corporate executive friends, to persuade them to prefer CSFB for their investment banking business. The new management of Tyco, whose CEO and CFO are under criminal prosecution for frauds totalling $600 million, is discovering more new scandals. Health South has been charged with an accounting fraud of $1.4 billion by inflating insurance claims. There are a number of suits, in what could turn out to be the biggest case, against Citigroup, J P Morgan and other investment banks for helping Enron and other companies to commit fraud, and for rigging IPOs to defraud the investing public.ii Needless to say, this is hardly an exhaustive list.
The repercussions have been immense
According to a survey by BusinessWeek, 92% of respondents have “only some” or “hardly any” confidence left that the market treats individual investors fairly. Some 93% have “only some” or “hardly any” confidence in those who run big companies. About 95% feel the same way about big auditing companies, such as Arthur Andersen.
Some 82% are either “not too confident” or “not at all confident” that corporations accurately report how much money they make.
And few of the respondents really believe that anyone can or will do much about all this. For instance, 94% have “only some” or “hardly any” confidence that Congress can write effective rules governing corporate financial practices. Some 93% have the same view of the chances that federal regulatory agencies can do the job. And 60% strongly disagree that corporations can successfully reform themselves.iii
According to another survey by Business for Social Responsibility, a global organization, 90 per cent of American respondents want companies to look beyond the bottomline. BSR also found that nearly 50 per cent form an impression of a company based on its behavior and 39 per cent react negatively to a company that is perceived not to be socially responsible.iv
These are challenging times for companies, pension funds and individual investors. The Teacher Retirement System of Texas and the Texas Employee Retirement System is the last fund that you would expect to be impacted by corporate scandal. But look again. With approximately $100 billion to protect, they have to make wise investment choices for their members. Both funds invested in Enron, and both talk about their losses on their respective websites.v
In the communications business, we confront the challenge of this changing environment every day. We see stakeholders hold companies under the magnifying glass, checking accountability, monitoring performance and assessing a company’s impact in a community or on the environment. We have seen and continue to see how this intense scrutiny has affected businesses.
India too has seen some repercussions of the global mood
There has been a general mood breeding a lack of trust in regulators following recent scams unearthed in the Indian stock markets.
The brooding has had its fallout on unsuspecting companies, as ICICI Bank, one of the country’s largest banks, would confirm. A short message service that the bank was on the verge of bankruptcy started the run, gathered momentum as messages were flashed across cellphone networks, ICICI Bank branches across many cities witnessed the unedifying spectacle of queues of people waiting to withdraw their money as fast as they could. The Reserve Bank of India had to step in to calm things down.vi
The importance of trust
Research by Burson Marsteller, called “Building CEO Capital” reveals dramatic findings. After speaking with more than 1,100 business influentials – CEOs and other senior executives, financial analysts, institutional investors, the business media and government officials in the United States – the research infers that the CEO’s reputation is a key factor in a company’s reputation. In fact, the research data reveals that:
• CEO reputation accounts for a staggering 48 per cent of a company’s reputation
• Companies whose CEOs were rated “most admired” achieved a 13 per cent compound annual shareholder return over a three-year period. Companies with CEOs who were rated less favourably delivered a negative return.
• Eighty-eight per cent of respondents said that the CEO’s reputation would influence whether they would recommend a company as a good place to work. Ninety-four per cent would believe the company if under media pressure. Ninety-two per cent would maintain confidence in the company when share price is lagging.vii
The growing importance of trust is also embedded in a number of other developments:
• The rise in the number, influence and sophistication of non-governmental organisations that monitor, track and inspect global corporate players. Less than 30 years ago, there were 1,400 NGOs. In 1995, there were nearly 30,000. Today that number has grown 10 fold.
• An increase in shareholder activism. Of the more than 700 shareholder resolutions filed in the US in 2002, more than a third of them were based on social issues.
• Greater disclosure requirements of social and environmental performance as part of their “new economic regulations” by Governments, particularly in Europe.viii
Just three years ago, the concept of triple bottom line reporting – that means assessing and providing an accounting of a company’s social, environmental and economic impact and performance – was embraced by only an enlightened few. Today, such reporting is embraced by the majority to prove they are acting responsibly.
The recognition of the importance of Trust is well entrenched in India
Respect is, in some ways, an intrinsic part of Indian culture. The Indian ritual of touching the feet of elders is a good example of how respect manifests itself in everyday life.
This transcends into the corporate world. For decades now, since Independence, corporate majors such as the Tata and Birla group companies have led the way in making corporate social responsibility an intrinsic part of their business plans. These companies have been intensely involved with social development initiatives in the communities surrounding their facilities. Jamshedpur, one of the prominent cities in the northeastern state of Bihar in India is also known as Tata Nagar and stands out at a beacon for other companies to follow.
Respect is a much sought after tag in the Indian corporate world. This is one of the reasons for the immense popularity of The Most Respected Companies of India survey, initiated by one of India’s premier business magazines, BusinessWorld in 1983, long before skeletons began toppling out of the corporate closets around the globe. In fact, the magazine admitted in a cover feature following its first survey that the overwhelming reader response to its first ever ranking of corporate reputations indicated that “there is a great deal of interest within the management community in the subject of corporate reputations” and that this interest was “more than academic.”ix
Respect, as viewed by the survey was an aggregation of two broad parts of a company’s deliverables: quantitative (like profitability) and qualitative (like community responsibility).x
The parameters for corporate respect in this survey are wide ranging: Overall quality, top management leadership, depth of talent, belief in transparency, ethics, social responsiveness, environmental consciousness …
Criteria for ranking India’s most respected companies
Source: Businessworld, January 2003 [India’s most respected companies]
What the survey clearly reveals is that impressive financials are not enough to earn respect…You were respected not because you were big and powerful, but because you were transparent, your stakeholders trusted your policies, your HR guidelines were fair, you were ethical, and you contributed to society. Transparency and ethics were the most important.xi
“Respect is the first thing we look for when doing anything,” says N.R. Narayana Murthy, Chairman Infosys Technologies, the company that was crowned the Most Respected Company in the survey this year.
Top Ten Most Respected Companies in India, 2003
No.1 Infosys Technologies
No.2 Hindustan Lever
No.3 Reliance Industries
No.5 ICICI Bank
No.6 Gujarat Co-operative Milk Marketing Federation
No.7 Dr. Reddy’s Laboratories
No.10 Hero Honda
Source: Businessworld, January 2003 [India’s most respected companies]
Hindustan Levers Ltd., known as Uniliver to the world outside India, is another company that has remained in the top three most respected companies for the past decade, and has topped the chart four times, the maximum number of times yet for any company “If you have respect, value will follow,” says Chairman M.S. Banga, reflecting the view from the very top.
Adds Narayanmurthy, “At the end, respect comes to people who do desirable things and who can be trusted. When you make a statement, people should say, we believe.”xii
There has been a long history of CSR in India and the Tatas have been the role models on this path. Explains the chairman of the Tata Group, Ratan N. Tata, “We do not do it for propaganda. We do not do it for publicity. We do it for the satisfaction of having really achieved something worthwhile.” The Tata Business Excellence Model integrates social responsibility into the framework of corporate management wherein social responsibility is encapsulated as Key Business Process. In fact all social service departments in Tata companies have annual programmes and budgets… and all this is aligned to the MD’s Balanced Score Card.
Corporate Social Responsibility programmes at the Tata group of companies extend across a wide spectrum including rural development, community development and social welfare, family initiatives, tribal development and water management.
About 7000 villages around Jamshedpur and Orissa benefit from development programmes run by the Tata Steel Rural Development Society (TSRDS). programmes of TSRDS cover issues like education, irrigation, afforestation, adult literacy, vocational training, handicrafts and rehabilitation of the handicapped persons. The Community Development and Social Welfare Department (CDSW) at Tata steel carries out medical and health programmes, blood donation drives, mass screening of Tuberculosis patients immunization camps and drug de-addiction. In 1999, Tata Steel embarked on an AIDS awareness programme, which has now become an integral part of all training programmes. Routine activities like immunization programmes, sterilization operations and mother and child health care programmes are conducted through 9 family welfare centres, 9 child clinics and 6 community-based clinics. In fact, Tata Steel’s Centre for Family Initiatives (CFI) was successful in influencing 59 per cent of Jamshedpur’s eligible couples practicing family planning, compared to the national figure of 35 per cent. A commitment to the welfare of the community has long been central to the value system of companies in the Tata Group. To build upon this heritage the Tata Council for Community Initiatives (TCCI) has created the Tata Guidelines on Community Development, an effort of over three years from the field evolved into a framework of best practices.
The Birla group of companies are also among the pioneers in the field of corporate social responsibility in India. As part of the Aditya Vikram Birla Group’s Social Reach, the Birla group runs as many as 15 hospitals in India; includes Adult education and schools conducting as many as 78 schools all over India; rehabilitates Handicapped persons having touched more than 5000 physically challenged individuals. More than 1,00,000 patients have been examined under the Group’s medical programmes. Over 15,000 children along with 2000 pregnant women have been immunized, over 500 cataract patients operated, 2000 TB patients provided medical care, 100 leprosy-afflicted attended to, free of cost.
It also provides Vocational Training, having provided training to over 3000 women and having distributed over 1400 tool kits in a variety of areas like electrical, auto repair, electronic equipment maintenance and repair and tailoring. It has adopted several villages under its Village Infrastructure Development programme and has provided extensive training to over 10,000 villagers in its Carpet Weaving Center.xiii
Among corporates who have displayed deep commitment to Corporate Social responsibility over long years is Mahindra & Mahindra. The late Mr. K. C. Mahindra for promoting education among Indians at all levels established the K. C. Mahindra Education Trust in 1953. Every year the Trust offers up to 30-40 interest-free loan scholarships to post-graduate students going abroad for higher studies. The Mahindra Search for Talent Scholarships is a scheme established in 34 schools in India to enthuse and reward students who have achieved excellence in their academic pursuits. The Mahindra All India Talent Scholarships are awarded every year from all over India to over 300 students from lower income group families with good scholastic record pursuing job-oriented diploma courses in various polytechnics.
Similar commitment to CSR has been displayed by several corporates in India. The list, which at best can be far from complete, includes Arvind Mills, Escorts, Dabur, Bajaj, Godrej, Hero Honda, DCM Sriram, Ashok Leyland, Ballarpur Industries, Eicher, Kinetic Group, Kirloskar, Infosys, Reliance, Ranbaxy, Wipro, each of which has been deeply committed to their communities engaging in programmes encompassing education, health, education, integrated rural development.
Beyond the private sector, corporate players in India’s public sector too have been actively involved in corporate social responsibility initiatives.
Most public sector units in the heavy engineering industry have not only set up a township around the plant, but also established a school, a hospital and several other civic facilities for its employees and those that live in that area.
Private sector companies have been encouraged to undertake rural development programmes down the years through fiscal incentives by the government. For instance, special benefits are offered in the industrial policy to companies that set up industries in backward areas and tax incentives are also offered to companies that set up water purification projects.xiv
In India, it has also been noticed that when it comes to individual CSR activities, the ‘anonymous’ donor mentality prevails. That most people tend to keep a low profile was confirmed by The Economic Times, a leading business daily in India. It conducted a straw poll and talked to several professionals involved in the field and NGO circuit to get an idea about the leading lights.xv
Of course, with the intense spotlight on the subject, the interest in corporate social responsibility is spreading in India as well. The Corporate Social Responsibility Survey 2002–India, jointly conducted by the United Nations Development Programme, British Council, Confederation of Indian Industry and PricewaterhouseCoopers, covering 19 industry sectors reveals that this interest is growing as more and more companies in India are keen to project themselves as good corporate citizens. This was the most important factor driving CSR in India, according to the survey. Good corporate citizenship and CSR initiatives are inextricably linked with improved brand reputation, which is one of the most important drivers of CSR identified by the respondent companies. The other key drivers of Corporate Social Responsibility in India were diverse ranging from stated philosophy of founding fathers to improving relationship with local communities to enhanced shareholder value.xvi
Drivers of CSR
Source: Corporate Social Responsibility Survey 2002 – India
(United Nations Development Programme, British Council, CII, PriceWaterHouseCoopers
As part of the survey, over 100 companies—ranging from large to mid-sized corporations—responded to questionnaires sent to around 1,000 companies during September-October 2002. Besides, a group of researchers conducted an in-depth study of CSR programmes in top business houses. The respondents unanimously acknowledged that social responsibility was no longer an exclusive domain of the government and CSR is much more than “passive philanthropy.”xvii
“India has a strong tradition of philanthrophy…,” states the foreword to the survey, “…It is encouraging to note that many are beginning to make a shift from a tunnel vision on corporate social responsibility to an integrated model that mainstreams through business vision and processes.” In fact the most striking feature of the survey was the overriding response that ‘passive philanthropy’ alone no longer constitutes corporate social responsibility.xviii
The Survey broadly categorises the main types of CSR activities undertaken by Indian corporates as under:
Areas of CSR addressed in Corporate Policies xix
Source: Corporate Social Responsibility Survey 2002 – India
(United Nations Development Programme, British Council, CII, PriceWaterHouseCoopers
The Public Relations link
Interestingly, the website Indian NGOs.com, a site intended to be a repository of information on the developmental sector, conducted personal interviews on social responsibility with 196 Indian corporates, and supplemented this with secondary research on the CSR policies of all the Fortune 500 companies. According to the results of the study, in 58 per cent of the corporates, the public relations department shoulders the responsibility for CSR initiatives.xx
Departments handling CSRxxi
Foundation staff 12%
CSR Dept 5%
Other Depts handling CSR : HR, Admin 25%
The fact that this was not a recent phenomena was evident in the fact that the more than a third of these departments handling had been in existence for over 15 years and over 60 per cent had been in existence for over 5 years.xxii
This link is a reflection of the role that public relations plays in generating trust through corporate social responsibility. Public relations, in fact, is the social face of an organisation driving stakeholder relationships. This connect has only reinforced this role, often lost in the myopic vision of media relations, as companies are focussing on communicating their CSR initiatives through multiple platforms, transforming their websites, issuing reports and signing up to speak on conference panels.
As professionals who have been avid observers of corporate social responsibility initiatives in India and intensely involved as they link in with public relations, it is extremely important to point out the need to take into account the sensitivities and sensibilities of the Indian populace while undertaking such programmes.
The importance accorded to respect for elders, relationships and family values are the pillars upholding the symbiotic relationship between the community and businesses in India. The deeply engrained belief in karma as espoused by the Bhagwadgita extends into the role of business in this society, breaking across the barriers of culture, religion and language. Well-advised multinationals operating on Indian soil like Ford India and Cargill have shown deep respect for local sensitivities and pride.
Navigating this sometime difficult environment presents businesses with new challenges yet also offers new opportunities. But sound practices and relationships with stakeholders better prepare us to deal with unique issues thrown up by distinct regions.
It is however important to ensure that at every level, employees involved in CSR activities understand their role in making certain the company follows through on its commitments.
This is where public relations comes in. Formally or informally, it has been bridging the gap between trust and CSR initiatives in India, making the Indian experience a success.
Currently published in the US-based Journal of Communication Management in 2003