Annual Lectures

4th Annual lecture, 9th December 2004
Ms Anu Aga – Ex Chairperson, Thermax Ltd

CSR is defined as 'achieving commercial success in ways that honour ethical values and respect people, communities and the natural environment.' In its simplest form it is 'what you do, how you do it and when and what you say.' Since corporates have to draw on the community in which they operate for all resources, they also have obligations to their multiple stakeholders. Stakeholders are defined as those who get affected by corporate policies and practices. Today it is acknowledged that business has not just financial accountability, but has also social and environmental accountability, popularly known as the triple bottomline of good governance. CSR is often referred to as Business Ethics.

A powerful set of external forces and changes have contributed to the recent rise in preeminence of CSR: increased consumer and societal expectations from business, voiced by powerful NGOs like Greenpeace and in your own city the Center for Science and Environment which has exposed the cola and bottled water majors. Or the FDA's pursuit of the chocolate-worms controversy. The heightened reach of media, assisted by advances in information technology has made these corporates run for cover, forcing them to orchestrate expensive and elaborate damage control exercises.

Many social activists are demanding that reporting of CSR should be made mandatory and should include specific targets that can be measured, year to year. Corporates are expected to continuously improve their social, environmental and financial performance - the triple bottomline, I had referred to earlier. Though so far it has not been made compulsory (except in France), it is a big step towards corporates assuming greater responsibility for their policies and practices. What is clearly expected of them is not only to brag about the positives in their media releases and annual reports but also candidly report what has gone wrong, with a credible plan of action to limit or undo the damage.

What I am saying is, it is myopic and ill advised for business to divorce itself from the rest of society. How companies behave affects many people, including the flora and fauna, and just not the shareholders. A company should be a responsible member of the society in which it operates. That means contributing to sustainable development by working to improve the quality of life of employees, their families, the local community and stakeholders up and down the supply chain. It can mean a day-care facility for working mothers, a new clinic, health insurance, playgrounds; it can mean biodegradable packaging, cleaner fuel for buses and trucks, community tree plantation drives, reduced water and energy consumption. It can mean a lot of things… the list is endless.

The critics of CSR argue that meeting the expectations of a wide range of stakeholders and complying with new monitoring and accounting systems raise costs which will be passed on to the customers. They cite the case of Body Shop that became famous for its ethical and sustainable approach, but has ultimately not prospered as a business. Are the critics saying that business viability and CSR do not go hand in hand? Many corporates that have embraced CSR and sustainable development models are extremely successful. Let me give you an example:

Merck, the pharmaceutical giant, developed a treatment for a tropical disease, which in layman's language is called "river blindness" This disease afflicts millions of people in some of the world's poorest regions. Despite having no commercial market for this drug in the west, Merck invested millions of dollars in developing this drug. In 1987, in collaboration with the World Health Organization, Merck organized free distribution of this drug. Around 25 million people a year are treated under this programme to eliminate the risk of premature blindness. Doing this has in no way diminished the profitability of the company. As a matter of fact, this humanitarian gesture has enhanced its reputation capital.

Let us visualize a company operating in a bounded space, which looks like a hexagon, which exerts competing pressures. The six sides are represented by:

At the centre of the hexagon is the Board of Trustees that holds accountability for all the stakeholders occupying the hexagon. The responsibility of the Board is to perform a stewardship role, which balances the short-term interests of the present day shareholders with the need to safeguard the interest of all the stakeholders-now and in the future.

Let us now look at each of the stakeholders and what they expect from corporates:

Customers

I am a staunch believer that the first obligation a business has is towards its customers. CSR starts with producing quality products on time at fair prices and ploughing back a substantial part of profits so that the products can be further improved, delivered faster at much lower costs.

All Corporates glibly claim that the customer is the king, but in reality experience him as a pain. Though customers are located in multiple locations, they have a very critical stake and their interest is represented by their choice to buy or not to buy the products or services in the market place.

In India when we had a closed economy, many companies got used to producing shoddy goods and services at exorbitant prices. Liberalization has brought in competition and the customer has the choice to keep business in or to cast a 'no confidence' vote against the company. As Azim Premji has said: "People and organizations live for the future. And it is the customer who really has the choice to grant us that future."

Employees

"Employees are our greatest asset" is the favourite corporate cliché. And yet in their profit and loss accounts, employees are put down as costs and not as assets. With the advent of information technology and service industry, corporates have suddenly realized that employees today represent the most valuable "intellectual property" which is their most precious asset. What is more they have become aware that this asset has legs and could walk out! Not every employee is seen as an asset but good employees are certainly sought after and need a nurturing and challenging work environment.

Since working people spend most of their waking hours at work, is it not the responsibility of the company to make the environment challenging, joyous, collaborative, so that each individual gives out her best? Stifling work cultures create tension which affects the health and morale of employees and so much talent goes untapped.

Shareholders and Investors

In the past it was believed that the business of business is business, meaning it has to be accountable only for its economic wellbeing. This led to the myth that profits and growth are the sole purpose of business. Instead of taking a narrow, short-term view and defining the business of business as business, can we define the purpose of business as human well being? With this overview, social responsibility becomes an integral part of an organization's culture and business philosophy - a way of life.

Environment and Community

Earlier, corporates dumped their wastes with impunity in the environment. With the growing awareness and concern about environmental degradation, depletion of natural resources like water and fossil fuels and the phenomenon of global warming; there is moral and legal pressure on corporates to realize that the earth needs to be preserved and looked after so that our children and future generations are not adversely affected.

Suppliers

Traditionally a company used to get a component or product from its vendor or supplier but did not take the responsibility to ensure at least minimum and humane standards that a supplier would offer to its work force. Corporates argued that they did not own their suppliers and hence had no right or responsibility to interfere in their workspace. But the famous or not so famous Nike case has changed that attitude, at least to some extend.

Nike shoes and clothing is manufactured in more than 700 factories in 50 countries. Monitoring what takes place in each of these factories is not an easy task. Nike learnt about the power of the Internet and how adverse publicity can damage the company in many ways. Nike has been accused of allowing child labour to be used in its vendors' factories in developing countries, under sub-standard conditions.

When news of 'sweat shops' was all over the US, a graduate student from MIT responded to Nike's offer to personalize customer's trainers by asking for the word 'sweat shop' to be printed on the side of his shoes. When Nike refused, the student emailed the company saying 'thank you for the time and energy you have spent on my request. I have decided to order the shoes with a different ID, but I would like to make one small request. Could you please send me a colour snapshot of the ten year old Vietnamese girl who makes my shoes?" His email exchange with Nike was flashed around the world, which created a very negative public image for the company.

With this experience Nike woke up to its social responsibility and has been very self-critical of its past behaviour and has taken proactive steps to take responsibility for their supply chain. Today it has over 90 people employed in CSR positions and it invests heavily in independent third-party audits of its suppliers, the findings of which it agrees to publish even though they may be unfavorable.

Government

The Government, through its various regulatory bodies, tries to protect the interests of various stakeholders.

Though there is a need for legislation and imposing certain regulations, experience has proved that if corporates are not convinced about an issue they will follow it in letter and not in spirit. Let us take the example of pollution control. The US has strict legal requirements whereas Europe appeals and incentivises companies that follow it and Europe has been more successful in implementing pollution norms.

In India we have laws for pollution control and have corrupt inspectors and that has led to buying the cheapest and perhaps non-functional equipment and getting away by bribing the inspectors. In a way, we neither strictly enforce the law as it is done in the US, nor do we consciously and continuously raise the awareness of our business houses, as is done in Europe.

To protect the labour force in India, the government again has over-regulated, with the result companies find ways to dodge these rules or avoid employing permanent workers.

For years government and business are viewed as adversaries in different camps. We need to move away from this mindset and industry and government together need to find solutions that will meaningfully address problems of the community. If government treats business as erring children who need to be chided and controlled then business will behave in a rebellious manner. But if both sides treat each other as mature adults then they will dialogue and a common, actionable agenda will emerge.

So far I have spoken about CSR in general, but now I would like to specifically focus on the Indian scene.

Where is India compared to other developing countries?

As an Indian I am pained and ashamed that out of 133 countries, we are 102nd in being the poorest. Malaysia is 8 times richer than we are Korea - 20 times Thailand - 6, China - twice Indonesia - twice (after the crisis).

In 1960 we were at the same level as the above countries and some of them were even poorer than us, but most of them have overtaken us. After 56 years of independence we have a population of 1 billion and by 2040 we will surpass the population of China. About 33% of our population lives below the poverty line.

50% of Indian children suffer from malnutrition and this is reflected in the death rate of one in every nine children before reaching the age of five. 53% of students in primary school drop out, one third of children in fifth grade cannot read, three quarters of the schools do not have a functional toilet, female literacy is only 45% and 50 million children in the age group of 6 to 14 do not even attend school.

According to the latest reports, India has close to 5 million people affected by HIV / AIDS, which is the second highest in the world, (the first being South Africa). India's four largest metros rank among the 10 worst polluted cities in the world.

What has led to this state of affairs? It is the apathy, which is the opposite of social responsibility, demonstrated by the government, the corporate world and the average citizens.

Given the extent of poverty in India, the low levels of literacy especially among women and the abject healthcare facilities available to the weaker sections of the society, a lot more needs to be done, especially by the corporate sector which has the financial and organizational muscle. In partnership with the government and NGOs it can make a significant and measurable contribution to improving the lot of the less fortunate men, women and children of our country.

I would also like to touch upon two related issues, which I think, are of great importance and where corporate India can play an influential role. The issues are corruption and social justice.

Corruption in India has got its tentacles in all spheres and has eaten into our moral fibre. What is sad is that an average citizen looks at corruption as inevitable and justifies that it is widely prevalent in all developing countries. Honesty is viewed as an old fashioned virtue and corruption is considered a non-issue. We grumble about it and keep contributing towards it, but who will take the first step to reduce and eliminate it?

We expected corruption to reduce after liberalization, but in fact it has got worse. If we do not do something against this evil which each of us has perpetrated, what kind of a country will we have?

Rajiv Gandhi, and later on P C Alexander, the ex-governor of Maharashtra, have stated that 80% to 85% of the government spending on social causes ends up in inefficiency and corruption. If this is the state of affairs, do we still want only the government to assume further responsibility for solving the social and economic problems or should NGOs, corporates and students join hands to tackle the issue?

In the beginning of my talk, I defined CSR as "what you do, how you do it, and when and what to say". Most corporates and civil society all over the world have forgotten about the corporate responsibility to voice concern when there is grave injustice.

India has chosen to define itself as secular and its rich diversity needs to be preserved. From time to time we have had communal violence, but recently it has been systematically whipped up. When there is grave injustice, as happened in Delhi after Indira Gandhi's assassination and in Gujarat after the Ghodhra incident, can corporates afford not to raise their voice? I make a distinction between individual acts of violence, terrorism and state sponsored violence.

The two incidents I have mentioned above are where the state turned a blind eye to the atrocities. Individuals can be targets by government and may buckle down under pressure, but can Corporates and NGOs speak up? A corporate has financial and managerial resources and an NGO usually has respect and both these can be potent in influencing the community and the government. Can NGOs and Corporate world succeed in an environment where justice is compromised?

If corporates do not assume responsibility to ensure that the uneducated are offered opportunities for education, get employment and improve their lot, the poor may not accept this huge disparity between the rich and the poor and may become more vocal and demanding leading to unrest. Can our country thrive when there are bandhs, riots and instability? Can our reforms genuinely have a human face?

The two important questions I want to leave behind with you are:

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