Chennai: Should the only social responsibility of business be to turn in a profit, as economist Milton Friedman famously advocated? Delegates gathered at the Confederation of Indian Industry’s first summit on corporate social responsibility here pondered that question and generally found the view, articulated by Friedman in a 1970 New York Times magazine piece, outdated. Arun Maira, chairman of the Boston Consulting Group in India, for one, says companies have social obligations to shareholders and society alike. He sat down with Mint to expand on this issue. Edited excerpts:
Corporate social responsibility (CSR) has become a catch-all phrase that means different things to different people. In your view, what is CSR?
CSR is seen in two ways. One of them is using the money that the company has produced and put it back into good works, which may not even be related to what the company does—Charitable Trusts, foundations, philanthropy if you will. Take profits, which some would say should be returned to the shareholders, and use them to do good work on the side.
The other view gaining currency is that employees want to be themselves personally involved and do volunteer work. They want to connect with the society around them and do volunteer work because it is important to them as human beings. It sometimes develops into a separate department that focuses on community development that again gets disassociated from the core aims of the business. I say go beyond that. The need to do these things is what we have to understand. Why is it that society seems to need these things: repairing the environment, helping people out of poverty, lack of education, and what we can do about changing it?
Corporations need to look at what they can do in terms of their own products, their own processes and their own business model so that they not only don’t create damage but can go about repairing some of the things that are wrong or could be improved.
The role of the corporation in society needs to change.
How should the role change in Indian society today?
It’s international really. Corporations have to abide by certain conventions. For example, to get your company listed on the NYSE (New York Stock Exchange), you have to follow certain rules and one can assume that, if listed there the company largely follows them.
There are international standards and conventions for what a corporation should do and how it should do it. This is where the tension is.
It is evolved very much over time to focus on the corporation as a vehicle to make money for its investors and evaluate them according to that. Are you producing good returns for your investors? Are you transparent in the way you operate? Are you being fair to all your investors? Those are the criteria that are looked at in good corporate governance.
Communities can feel hurt by the power of a corporation when it’s not respectful of the communities’ requirements. In India, it is very much more so because the gap between those who need and those who have the power and money today is the greatest in the world.
We have a double challenge. While we have to appear to be doing as least as good as corporations elsewhere, we have to do things very differently. A lot of times we appear not to be meeting standards that have been set. What we need to do is set new standards that maybe they should follow also. We need to be leaders here.
Friedman and his economic theories have been invoked several times today. Should the business of business be to maximize returns for shareholders, and how does CSR fit into that?
There are two ways in which people look at systems. I’m a physicist. When I was growing up I was taught that if you find out the property of a particle, you can then understand how the system—composed of many particles—works. Friedman’s view is that in the system, every part has its role.
But it’s the interaction between the components. A healthy society requires that the interactions between these components be looked at and be made healthy too.
How have Indian firms done in terms of meeting challenges such as poverty alleviation and preservation of the environment? Should they feel obliged to do more, as the Prime Minister has suggested?
India is so large—the challenge, 350 million people in poverty, half of whom are children that get poor nutrition and are below the recommended weight for their age. You’re talking about hundreds of millions of people. To expect a very small private sector to change all this, I think, not practical.
If you look at the whole system, it appears it is not working, though things are improving. But on an individual level if you look at whether there are companies doing things to make some little piece better, there are some—like the Tatas. And they do it while creating value for their shareholders.
How should companies decide what to do in a CSR programme? Should it be driven from the top? What about focusing on the personal causes of the CEO unrelated to the core business?
What I said was, doing CSR for a cause is very important and they should do it, as every human being should. But the CEO as a human being can also engage with that and do some good for society and the corporation might take some credit too. But is it enough? You have to redefine the corporation itself, its prime processes, its product, its prime business model and reshape that, and that can only be led by the CEO and the board themselves. You’re talking about the construct of the thing itself. No employee within can change that construct. They might want to volunteer and give their time, but they can’t effect the fundamental change that we do need in India. What should a corporation do and what should it be held responsible for, how it should operate—I want the CEOs to give their time to that.