By R C Bhargava
Corporate social responsibility (CSR) of companies has become a subject of much debate. Despite this, I had been unable to understand what exactly companies are supposed to do as their CSR. Is it philanthropy and charity? Is it social and humanitarian work or protecting the environment? Is it undertaking public service tasks which normally government should be doing? Or is it all of these? I believe that the CSR of a company should be undertaking all actions as would maximise the probability of its long-term survival and sustained growth.
All companies have both direct and indirect stake holders. A company also impacts on the external environment. Direct stake holders would include all employees, suppliers and vendors, dealers, as well as share holders. Indirect stake holders would comprise communities living near the production facility, customers and others whose livelihood could be influenced by the operations of the company. The larger the company the greater would be the number of its stake holders. It is clearly in the interests of all the direct stake holders that the company should have long-term sustained growth, as closure of a company would lead to disruption in the lives of many, and often cause severe hardship to the weaker amongst stake holders, including small share holders.
If a company is engaged in providing essential inputs for other industries, closure would have even a wider impact. Thus in terms of societal responsibility, I believe every company must understand and implement measures which would enable sustained growth, and prevent bankruptcy. Charitable and similar acts should not get precedence over protecting the interests of the direct stake holders and the environment. A promoter should certainly not think of his company’s responsibilities only in terms of his narrow financial interests, as often happens.
The government policy to promote infrastructure and heavy industries through the public sector was to bring about economic growth with equity. The long-term survival of government companies was never an issue, as long as taxpayers – money was available to support them. In that event, the CSR of such companies should have been achieving the targets for which they were established, without incurring cost and time over runs, and expanding output to meet the needs of the economy while constantly improving productivity and quality. Companies who underperform in these respects cannot justifiably say that they are fulfilling their CSR by claiming to be model employers, or doing development work in villages or giving donations for good causes.
A good example is Maruti Udyog Ltd. While nationalising Sanjay Gandhi’s Maruti Ltd, Parliament decided that a government company should be established to modernise the Indian automobile industry. The management of Maruti decided that this object had to receive its undivided attention. A strategy was evolved as to how this objective could be achieved within the constraints of operating as a public sector company. We recognised that the then existing systems for managing a PSU were unlikely to attain the desired results, and so drew heavily on the Japanese experience. Maruti did not follow many of the practices normally applicable to government companies as part of their `social responsibility’. The results speak for themselves.
Making profits on a sustained basis is a necessary condition for any company to survive for long. In today’s globalised and increasingly competitive world, sustained profitability is not possible unless all direct stake holders recognise the changes taking place and work towards ensuring sustained profitability. They have also to create a positive brand image which attracts customers to the products and services offered by the company. Following all laws and caring for the environment makes good business sense, and helps in image building. These matters have to be the core of the CSR of a company.
It is apparent that it is in the interests of workers, and other direct stake holders, that the company should have longterm sustained growth. Yet, in a large number of companies this does not appear to be recognised. Workers do not think that they should help the company become more competitive. Not all vendors and dealers identify their interests with those of the company. Why do people apparently act against their longterm interests? The primary reason is lack of communication between the management of a company and the stake holders.
Sometimes a company’s policies are also very one-sided. Workers, usually receive politically motivated communications from outside persons, who have no stake in the future of the company, and who are looking for short-term political gains. A management needs to counter this by developing effective two-way communication to educate workers as to what is in their best interests.
This education process has to be backed by policies and practices which would convince the workers that if the company does well in terms of rising productivity and profits, they too would be enabled to improve their quality of life. The workers should be able to see that management is not ‘exploiting’ them. This course of action was followed in Japan, and Maruti did the same. Workers shared in the gains of productivity, a large number of them became owners of houses and were respected and treated as human beings similar to management. I believe that such worker education and its consequences are a very important element of CSR.
In manufacturing companies, where a sizeable percentage of inputs are bought from vendors and suppliers, the ability to continuously improve quality and reduce costs is directly dependant on vendors doing the same. Just-in-time systems are only possible if vendors are totally reliable in all respects. The manufacturing company and its vendors are mutually dependant on each other for growth and profitability. Maruti recognised this and gave financial, technical and management help for developing and upgrading vendors. In turn, vendors gave full support to Maruti. Both became winners, the Indian component industry thrived, and the automobile industry was modernized. This was an important element of CSR.
Similar principles were applied in building a sales, and after sales, network. This has become Maruti’s strength for long-term sustained growth.
Share holder education is another element of CSR. They need to be educated about the benefits of financing growth from internal accruals, and how it reduces risk and increases the company’s ability to tide over adverse conditions.
All companies have to ensure that their activities do not adversely affect the environment. Depletion of natural resources, like forests or ground water is a case in point. Recovery of heat or minerals from flue gases or effluents reduces pollution and the consumption of scarce resources, while saving money. Atmospheric pollution affects the health of people and so must be minimised. Laws relating to the environment should be observed both in letter and in spirit.
Companies need regular availability of well educated and trained workers, engineers, management graduates and other professionals. Thus, getting involved in improving educational and training institutions, which are relevant to the company, serves both as CSR and promotes long-term business interests.
The same argument applies to programmes undertaken to improve the quality of life of people living near a production facility. A neighbourhood which values the presence of the company would obviously help in better industrial relations and give support in times of any emergency. Many actions taken by companies, like maintaining roundabouts and parks, or advertising for socially important causes help brand building. These are important for longterm business sustainability.
Promoting road safety is something Maruti believes is part of its responsibility for enabling people to make optimum use of automobiles. The running of driver training schools has been undertaken towards this end. Each company should consider how it can enhance the value of its products for society at large.
These are some of the considerations which I believe should go into devising CSR policies for companies.
R C Bhargava (The author is chairman, Maruti Suzuki India Ltd)
(Article first published in The Economic Times)