Does It Pay To Be Socially Responsible In Business?

Mr Vimal  after completing his MBA, worked with his family owned retail business ‘Rama Stores & Sons’ since last 2 years. In one of the board meetings he proposed that the company, like most other competitive organizations should also indulge in CSR activities.

Few board members   were not convinced with the proposal and justification given by Vimal and thought it as shear waste of resources and time. Thereafter Mr Vimal decided to search deeper in the subject and hence asked one of the management trainees (in HR Department), Miss Garima to research on the topic ‘Does It Pay To Be Socially Responsible in Business’. Miss Garima performed extensive research and benchmarking on the subject and finally came up with interesting findings that are summarized below:

The term ‘socially responsible’ has been changing over time. Earlier an organization was termed to be socially responsible if it initiated charity trusts to contribute in the field of education, health etc. But now with changing trends and mindset of corporate as well as consumers there has been gradual change in its very connotation. Being socially responsible is now seen as an integral part of the business strategy of a company. At the same time anybody (company, government or a social enterprise) needs to be prudent enough while deciding upon its initiatives of social responsibility as it might lead to conflicting interests of stakeholders.

In 1991, Carroll presented his CSR model as a pyramid and suggested that, although the components are not mutually exclusive, it “helps the manager to see that the different types of obligations are in constant tension with one another”.

n a country like India where about three quarters of India’s poor live in rural areas and a staggering 87% of India’s rural population lives in poverty. Rural markets have a demand of about 60% of FMCG products produced in India. But the rural markets are scarcely scattered so private companies usually find entering rural market less profitable. Thus there is need for making socially responsible distribution strategies by companies.

In 2007 ITC diluted its equity in India to be classified as an Indian company rather than a multinational. Earlier  farmers used to take their produce to “mandis” where each farmer was offered price on basis of crop’s moisture content, foreign matter and broken seed in the produce. Thus bargaining power of farmers was very less and they had no information regarding prevailing market price.

Later ITC came up with concept of ‘e-Choupal’ with an IT based procurement system. The farmers could now give their produce to nearest local ITC procurement centre. It helped them cut down on transportation cost, reduce wastage and requirement of labour. It helped farmers obtain weather forecasts, farming practices and latest commodity price using satellite connectivity. This lead to cost reduction in the procurement system by about 5% due to direct procurement adopted.

The profit was shared equally by both farmers and ITC. Later ITC also opened up branches of Apollo Hospital near the procurement centre. Thus it was a socially responsible distribution strategy adopted by ITC thought it had to face some initial problems like that of infrastructure, electricity supply, telecommunication connectivity and resistance from middlemen. But with time the degree of socially responsibility and profits being earned became a kind of cyclic process.