Corporate Social Responsibility

LECTURE 4:

Corporate Social ResponsibilityMGT 610

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Corporate Social Responsibility

Chapter 2Evolution of Company and CSR

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Corporate Social Responsibility

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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

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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

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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

• 16th to 18th centuries reflect conflicting policies

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Seeds of Early Corporations (contd)• Establishment of merchant guilds• More organized concept of corporation with

charter companies• English East India Company

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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

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• 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 win-

win 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

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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

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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