Corporate Social Responsibility LECTURE 4 Corporate Social Responsibility

Corporate Social Responsibility LECTURE 4: Corporate Social Responsibility MGT 610 1

Corporate Social Responsibility Chapter 2 Evolution of Company and CSR 2

Corporate Social Responsibility After Studying this chapter, you will be able to: • Understand the concept of corporation • Trace a brief history of corporations • Understand how modern corporations come in to existence • Provide a brief outline of corporate governance • Analyze the importance of CSR in governance 3

Corporate Social Responsibility Introduction • Concept of corporation has evolved over time • Hardly a human activity that does not fall under the shadow of corporation • Definition of corporation • In an economic system • Competition for scarce resources • Human creates process, capture resources and make products and create exchange • Not possible for one individual to do • Group with different skills and financial resources is formed • Risk is also involved in this process • Economic corporation works to earn profit 4

Corporate Social Responsibility Seeds of Early Corporations • Early corporations • Religious • Confraternity – religious association – members are committed to certain rules and guidelines to promote religious life (middle ages – to date) • Played significant role in religious and social life • Money was raised through banquets and feasts • They provided food and medical care • Activity was unorganized • Controversy as to who should control philanthropy – state, municipality , confraternities or other institutions • 16 th to 18 th centuries reflect conflicting policies 5

Corporate Social Responsibility Seeds of Early Corporations (contd) • Establishment of merchant guilds • More organized concept of corporation with charter companies • English East India Company 6

Corporate Social Responsibility Development of Modern Corporations • Early firms had single owners or a small numbers of owners • Unlimited liability • Started as small firms • To counter this risk – legislation was made to make the corporate entity and the owner separate • This laid the foundation of a corporation • Shares • Dividend (reduced during bad times) • Proprietor has more information than the outside shareholders • laws made to ensure equal sharing • Shares are liquid assets • Sold or pledged • Diversification of portfolio • Questions: • Ownership • Corporate governance 7

Corporate Social Responsibility • Corporate Governance: laws, codes, structures and processes put in place to run a company • Proprietor becomes the first director • As shareholders grow they are also owners • Sharing of profits • Succession planning of directors • Rules and regulations that will result in a winwin situation for the owners, management and the community • This process of restraining and control exerted by the company and the government related to the concept of corporate governance 8

Corporate Social Responsibility The Incorporation of a Company • Come in to existence under a law • Artificial person • Legally accountable and answerable • Shareholders can question the activities of a corporations • Shareholders are not agents. They are legal members • Selection of directors • Corporation have economic powers which can compete with modern state • Economic power Vs Political power • To rein in economic power • Corporate governance • File documents 9

Corporate Social Responsibility Governance and Management of Company • Corporate governance is not an abstract goal • It serves corporate purposes by providing a structure within which stockholders, directors and management can pursue most effectively the objectives of the corporations • Governance is the prerogative of the board of directors • The management structure is a pyramid • Authority, responsibility downwards and accountability upwards • Activities of the board of directors • Formulation of strategies, management and being answerable to shareholders • First principal of fiduciary duties • One having been entrusted with powers for another's benefits in under an obligation to act honestly • Board and external influences • Institutional investors • Hostile takeovers • Banks • Shadow directors 10