Corporate Social Responsibilty In Mauritius Management Essay

Corporate Social Responsibilty In Mauritius Management Essay The European Commission defined Corporate Social Responsibility as a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. In other words, it concerns actions by companies over and above their legal obligations towards society and the environment. According to the European Commission certain regulatory measures can create a more conducive environment for organisations to voluntarily meet their social responsibility. Similarly, the National Empowerment Foundation (NEF) defines Corporate Social Responsibility as the concept whereby companies act to balance their own economic growth with the sustainable social and environmental development of the country. An organisation that is highly involved in CSR is one that goes beyond the legal compliance and actively practices positive impacts on the local communities and the environment. In fact, there is not a standard definition of Corporate Social Responsibility as it is varies according to various countries and cultures. Corporate Social Responsibility (CSR) has become an important issue over the last two decades. Lawyers, practitioners, economists, and civil society have contributed to defining, developing, and analysing the content, nature and implementation of CSR (P. R.Waagstein, 2011). CSR has been practiced by companies all over the world for many years as shown by many researchers. At the beginning, it was more for staff well-being. For instance, during the industrial revolution and age, factories provided different facilities for the community surrounding them in order to make use of their labour. Over the past few years, both businesses and academic researchers have shown increasing interest and enthusiasm for Corporate Social Responsibility. For instance, research done has suggested that CSR may be an efficient tool to improve the legitimacy of companies amongst their stakeholders as per Handelman and Arnold (1999), and to develop positive social responsibility images, according to Sen and Bhattacharya (2001). PROBLEM STATEMENT The term CSR has, over years, been coined to allow the economic development of a country to participate in the socio-economic development. By being responsible for society, the same industries were allowed to give back, in a responsible way, to people working for them and purchasing their goods and services. Amongst the different levels of society, the emergence of need for different categories arose, for example, handicapped people, abandoned children, out laws, the elderly and street people. Thus, Corporate Social Responsibility became a term used for catering to all categories of humans and their wellness in the society. At the onset, Corporate Social Responsibility was a voluntary initiative for companies to act socially responsible. However, over the years, especially in the new millennium, since complete improvement was not totally visible around the world, the United Nations proposed some Millennium Development Goals to improve the general conditions of living. One of their main goals was to eradicate absolute poverty in developing countries and underdeveloped countries. Indeed, the United Nations Millennium Campaign, started in 2002, supports and inspires people from all four corners of the world to get involved and take actions in supporting the Millennium Development Goals. As stated, the main challenges and major concerns of the International community is to eradicate absolute poverty, but this can only be done by the combined efforts of all governments, civil society organisations and the private sector. As mentioned by the United Nations Secretary General Ban Ki-moon the goals are ambitious but feasible and, together with the comprehensive United Nations development agenda, set the course for the worlds efforts to alleviate extreme poverty by 2015. The Government of Mauritius has established a policy with the objective of mandating registered companies to pay 2% of their book profit towards programmes that contribute to the social and environmental development of the country. In Mauritius, CSR has been formulated in the year 2008, when then the Minister of Finance decided that companies should reinvest 2% of their book profit towards societal development. To date, CSR has been practiced by companies for years and one of the main issues that arose recently is how to regulate it. Should it be a legal norm, ethical norm or social norm? This question can be further elaborated: Should CSR be regulated through state regulation, code of conduct or self-regulation? Should it be regulated in a voluntary way or should it be an obligation to corporations? Another question that arises is whether it is the role of the private sector to take care or to look after the society, or whether it is the role of the government to do so, since all companies are paying tax and the main objective of a company is to maximise profits. In addition, on a different perspective, another question emerges: should an organisation only focus on maximising profits or should its role as a so cially responsible organisation also include looking after its society and the community? Matten and Moon (2008) offers a broad interpretation, arguing that it should be perceived both as a social imperative and social consequence of business success. Accordingly, two forms of CSR, implicit and explicit, have been introduced. Implicit CSR is embedded in various relationships among business, society and government within the political system. It is represented by strong values, norms and rules or regulations which require corporations to address stakeholder issues. It is important to note that politics and organisations are interrelated and interdependent as they need each other to accomplish their social responsibility in an effective and efficient way. A textbook example in Mauritius would be the Compagnie Mauricienne de Textile (CMT) that has donated Rs 25m to the government for the new project of building a high tech school for vulnerable and deprived children. 1.3 AIM AND OBJECTIVES OF THE STUDY The aim of this research is to determine the importance of voluntary or mandatory CSR for the overall socio-economic development of the country. In this context, the specific objectives are to: To assess the local opinion of CSR drivers and whether it is better as a mandatory or voluntary practice. This will provide a course of action for the new Ministry of Social Integration and Economic Empowerment. To provide for modifications in the local way of practicing CSR and to be able to answer queries of International organisations on eradication of poverty. To make recommendations so as to meet the targets set by United Nations and the Millennium Development Goals project, and to showcase Mauritius as a success example in Africa. 1.4 SIGNIFICANCE OF THE RESEARCH In fact, Corporate Social Responsibility is mandatory in Mauritius and this research primarily focuses on determining the opinions, points of view and the experiences of companies that are actively engaged in CSR. Further assessment will be made as to whether they prefer a voluntary or mandatory implementation and determining whether the local way of practicing CSR has benefitted society and provided improvements in the current way local companies are practicing CSR. In addition, it analyses the need for mandatory Corporate Social Responsibility in Mauritius and determines whether the government should keep it mandatory or voluntary or both. It further develops the idea of whether voluntary CSR should be modified to some other form to cater to the needs of the Mauritian society. It also gives a comprehensive overview of findings and conclusions that will allow the local CSR Committee and Government to review and improve its CSR policies for the country. 1.5 RESEARCH QUESTIONS Based on the above research objectives of the study, the following research questions have been formulated: How organisations define Corporate Social Responsibility? Awareness of local CSR guidelines and what their opinions are and suggestions on the CSR guidelines? What problems they encounter while implementing CSR practices? How can the CSR Committee help in implementing CSR activities? How businesses perceive Corporate Social Responsibility as a mandatory practice in Mauritius. Should it be voluntary or mandatory? 1.6 STRUCTURE OF THE DISSERTATION Chapter 1 Introduction This chapter provides an overview of the topic research on Corporate Social Responsibility (CSR), and sets out the problem statement of the study, outlining the objectives of the research and highlighting the research questions. Chapter 2 Literature Review This chapter reviews the literature relevant to the topic. It provides past reviews carried out by different researchers on Corporate Social Responsibility in various countries around the world. It also provides a description of CSR implementation in Mauritius and the similarities and contrasts that exist among the different countries. Chapter 3 Methodology The methodology chapter outlines the methods and techniques used to conduct the study, namely the research approach, design and strategy used. Information about the target population including the sample size and sampling method is given along with details about the interview questionnaire. Chapter 4 Analysis and Findings This chapter presents the data analysis and research findings. The source of data has been derived mainly from interviews that have been carried out. Further, discussions are based on the findings of this study. Chapter 5 Recommendations and Conclusions In this final chapter, appropriate recommendations will be made and the chapter will end with a concluding paragraph including the possibility for further or future research. CHAPTER TWO: LITERATURE REVIEW 2.1 INTRODUCTION This chapter presents an overview of the literature relevant to Corporate Social Responsibility. It provides a review of the past studies carried out by different researchers. The idea of social responsibility emerged in the United States at the beginning of the 20th century. Carroll (1989) states three critical turning points in the evolution of social responsibility: The Entrepreneurial Era Businessmen in America were building industrial empires and were abusing their power, being found guilty of antisocial and anticompetitive practices. Such practices included tax evasion and other unethical business practices. This caused frustration among the public who voiced their objections, causing the government to enforce laws whereby business had a role to play in society beyond profit maximisation. The Depression era of 1929- 1930s The economy of United States was dominated by large organisations and the government passed laws to protect investors and smaller businesses. In addition, the social responsibility of organisations was more clearly defined. (iii)The Social Era of 1960s This era was characterised by social turmoil in the United States. The Government looked closely at organisational practices and it was clearly defined to whom the organisation was responsible and who in an organisation was responsible for the organisational practices. Bowen (1953) the pioneering advocate of CSR, described Corporate Social Responsibility in terms of the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of objectives and values of our society. (Social Responsibilities of Businessmen, 1953). The emphasis was laid on peoples conscience rather on the company itself. This alteration in focus was provoked by a number of factors such as the managerial revolution and the mounting hostility of people experiencing social problems. The obligations were further elaborated upon, going beyond economic and legal implications by including the employee, the community welfare and the political and educational needs of society (McGuire, 1963). This gave rise to the modern concept of corporate citizenship (Maignan, Ferrell, and Hult, 1999). The Committee for Economic Development (1971) viewed CSR as the service of a wide range of human values to improve the quality of life. The managerial role in changing societal expectations has also been articulated by the Committee. On one hand, Manne Wallich (1972) mentioned that businesses should not spoil society but should provide solutions through voluntary assumption of obligations. On the other hand, Caroll (1979) summarised the discussion by providing the following definition: social responsibility of business encompasses the economic, legal, ethical and discretionary expectations that society has of organisations at a given point in time. Figure 1 Carrolls classic pyramid (Carroll, 1991) Carrolls CSR Pyramid covers the whole perspective of what society can expect from a company, economically as well as socially. This theory can be used to identify a companys CSR activities and how they use CSR as a strategy. It will further explain and recognise the connection between a companys CSR activities and its stakeholders. Carrolls CSR Pyramid can be used as a tool to clarify the different kinds of responsibilities that a company has to fulfil in order to achieve legitimacy from its surrounding society and stakeholders. 2.1 Definition of Corporate Social Responsibility Various organisations have viewed CSR in different ways, although there are considerable common opinions between them. According to Mallen Baker (2004), CSR is about how companies manage the business processes to produce an overall positive impact on society. Lord Holmes and Richard Watts (2000), in their publications Making Good Business Sense, defined CSR as: Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. This publication also provides some evidence of the different perceptions of what this should mean to a number of different societies across the world. It respects cultural differences and finds the business opportunities in building the skills of employees, the community and the government through CSR. Corporate Social Responsibility Developing Countries and Overseas Experiences In the year 2000 , the Millennium Development Goals set the challenge of Corporate Social responsibility in developing countries in view of eradicating poverty, hunger, providing better education to children, equal opportunities for women and a healthier environment (UN, 2006: 3). Unfortunately, in many developing countries these global aspirations have remained unaccomplished. (Visser et al., 2007) viewed CSR in developing countries as the formal and informal ways in which business makes a contribution to improving the governance, social, ethical, labour and environmental conditions of the developing countries in which they operate, while remaining sensitive to prevailing religious, historical and cultural contexts. According to a survey done by Welford (2005) in Asia, research showed that countries such as Hong Kong, Malaysia and Thailand where indicative of having less prevalent CSR activities. Malaysia is considered as the weakest in terms of CSR performance, with Thailand being relatively strong on external aspects (such as child labour and ethics) and Hong Kong being generally better on internal aspects (such as non-discrimination and equal opportunities). It was determined through a review done on CSR literature (Visser et al, 2006) that only 12 out of 53 countries in Africa have publications in CSR journals and that 57% of published articles focus on South Africa with 16% focusing on Nigeria. On one hand, CSR in the United States has been defined mainly in terms of a philanthropic model. Most companies focus on making and maximising profits and only contribute to charitable activities in an effort to benefit from tax concessions, contributing a certain share of the profits to charitable institutions. They believe that receiving any benefits from charitable sharing would tarnish the reputation of the company. On the other hand, the Canadian Governments perception of CSR is generally understood to be the way a company achieves a balance or integration of economic, environmental and social imperatives while at the same time addressing shareholder and stakeholder expectations. According to Cecil (2008), disclosure of CSR in the United States does not currently exist and is therefore unregulated as a required framework. In fact, various models and categories of reporting do exist under the umbrella of CSR, such as environmental reports, social reports and sustainability reports. Therefore the CSR report is separate from the annual report and represents non-financial qualitative and quantitative data. In contrast to other developed countries, Corporate Social Responsibility in the United States is not forcefully imposed. Companies in the United States participate in CSR based on their own moral and social values, allowing them to apply the triple-bottom-line approach voluntarily. In comparison, the laws of Mauritius state that it is mandatory for profit bearing organisations to pay the government 2% of their annual book profit as a CSR contribution. While companies in the United States have no mandatory obligation towards CSR, they widely exploit the CSR programme as a means of increasing their public image and corporate reputation. Given the fact that CSR in the United States is non-mandatory, companies can define and interpret their views of social responsibility within the context of own their company. Having this freedom has allowed them to better measure and promote CSR activities in comparison to their International counterparts. It is interesting to note that although companies in the United States are very explicit in their public statements with relation to their commitment to corporate responsibility, the lack of precise definition has led to confusion in terminology. A wide range of terms for CSR now exists, such as social responsibility, community investment and corporate citizenship. Each company tends to define them differently, yet having little understanding of what they actually mean, whether that is philanthropic giving, raw material sourcing or employment practices. Mauritius in comparison, although less developed than the United States, has a well-defined CSR programme as the mandatory enforcement of social responsibility has led to a single, precise and distinct perception thereof. The Government of the United Kingdom interprets CSR as the contribution a business makes to their sustainable development goals in terms of how they account for economic, social and environmental impacts. According to I. Pearson, Minister of the state UK, the world is experiencing major economic challenges and the issue of Corporate Responsibility must remain high on business and political agendas. He states that most successful companies have always been the most responsible. Business leaders recognise that Corporate Responsibility makes good business sense and it attracts the best talent, earns the trust of customers and the community and acts as a powerful investment for long-term sustainability. However, just like the United States, and in contrast to Mauritius, CSR is voluntary in the United Kingdom. The Government of the United Kingdom has adopted the voluntary approach as they believe it will motivate and encourage Corporate Social Responsibility through best practice guidance, and where appropriate, regulation and fiscal incentives. In the United Kingdom, CSR is viewed as a voluntary activity that should address both competitive and social interests. Mauritius does not share this approach and even encourages companies to contribute above the legal requirement to benefit the community and environment, invest in education and to help eradicate poverty. The question of whether or not CSR should be considered mandatory emerges when we consider that countries like the United States and the United Kingdom have no such legal compliance obligations. Why would a country like Mauritius, being a small island in the Indian Ocean, apply CSR as compulsory, especially considering that Mauritius is only the second country in the world where CSR is mandatory? NRE (Nouvelles Regulations Economique) law introduced in France in 2001 requires that all publicly listed French companies disclose information to their stakeholders pertaining to social and environmental impacts on their activities, together with their annual reports. There is no requirement for any specific constraints to be included with regards to their standards, thresholds or any other regulatory requirements. Although the law has been introduced, it should be considered as a soft law since the disclosed information is not regulated and there are no clear rules with regards to non-compliance. The legal responsibility is to report on social and environment impacts but without the requirement for certification of the disclosed information. In addition, the law does not clearly outline possible sanctions that may be imposed in cases of non-compliance or falsification of information. According to the research presented by L. Drusch and A.Lioui (2010) there has been a rapid growth in Corporate Social Responsibility in France over the last decade. This growth can be measured by the increase in the number of French companies that are listed in the Socially Responsible Investment (SRI) index in France as well as the listing of French companies in International CSR rankings, such as the 100 Most Sustainable Corporations in the World listing. Like the United States, CSR in France is based on the triple-bottom-line approach and is aimed at improving social, economic or environmental aspects in society beyond financial motivation. In addition, the United States does provide CSR reporting to some extent although not regulated and submitted in a separate report to the annual statements. In July 2007, Indonesia enforced a mandatory regulation regarding corporate social responsibility, being the first country in the world to do so. Based on the research done by Rosser et al (2008), Indonesia promotes CSR to local small and medium enterprises as a way to reach US and European markets. As compared to Mauritius, where the obligation is to pay 2% of the book profit, Indonesia has imposed a 3-5% obligation to be paid to the government. According to empirical data, the CSR law in Indonesia requires revision and improvement due to misinterpretations thereof, as well as lack of a precise definition. The law created a fierce debate and was heavily challenged as being nothing more than a philanthropy tax that was detrimental for business. Those challenging the law argue that there is no need to regulate CSR as sectorial rules have already been defined and introduced to regulate corporate responsibilities, such as the Environmental Law, Labour Law and Investment Law. The law is very unclear with regards to the governments expectations and has no clear definition of CSR. Unlike France, the law in Indonesia does stipulate penalties for non-compliance. Grafstrà ¶m et al (2008) identified that over the past three decades, the term CSR has been extensively debated by companies and in academic circles across the globe with a common goal: to identify a definition of CSR that all and sundry can collectively agree upon. Kemp et al (2001) observed that companies were hesitant to divulge their actual CSR activities due to the confusion that the term has produced over the past years. It was found that companies are reluctant to publish their activities for fear of reprisal by the media and NGOs should their approach be erroneous. Carroll (1998) found that companies often interpret regulations incorrectly and that laws often create a hindrance rather than improving economic performance. Although Mauritius followed Indonesias stance on mandatory CSR, being only the second country in the world to do so, the differences between the two countries can be easily identified. When the law was introduced, Indonesia faced fierce disapproval and the mandatory requirement is still an on-going debate. It remains mostly a disorganised and misunderstood concept whereas Mauritius appears to have a clearly understanding of what CSR actually entails as opposed to simply being a governmental tax requirement. The introduction of CSR into the Mauritian business environment was done so with a clear understanding on the benefits to business success, reputation and the social impact that such contributions would make on the island. Many are of the opinion that even if CSR was not mandatory in Mauritius, most organisations would still voluntarily contributing to CSR as a good business practice. Like Indonesia, India faced strong criticism when trying to impose mandatory CSR obligations in 2011. Their intention was to make it mandatory for companies to contribute at least 2% of net profits to the government. In July 2011 the Indian government backed down and made CSR contributions voluntary by recasting it as responsible business and issuing a set of guidelines for companies released on July 8th 2011 by the then Union Minister of Corporate Affairs, Mr. Murli Deora. The debate surrounding the mandatory CSR in India continues and the government has requested that companies keep records of their CSR spending in order to disclose to their stakeholders. The Companies Bill 2009 contains many provisions but none more debated than CSR. Salman Khurshid (the current Union minister for law) and Deoras predecessor, initially a mandatory CSR enthusiast, swayed his views that if CSR contributions were publicised, they would create competitiveness between organisations that in turn would encourage contributions. The Federation of Indian Chambers of Commerce Industry (FICCI) suggested tax concessions to companies who reached voluntary targets. The Confederation of Indian Industry (CII), a rival of the Indian Chambers, felt that mandatory corporate responsibility would be counterproductive, arguing that companies may resort to camouflaging activities to meet such regulations, particularly during recessionary periods and economic downturns. Indias philanthropic community does not support mandatory CSR. According to research, the CEO of the NGO Give India viewed this as a crazy idea. He believed that once CSR is made mandatory, people will find ways and means to get out of it. The rules would be so vague that the reporting would be even vaguer. The CEO and co-founder of the Dasra foundation agreed. He was not in favour of mandatory CSR. He felt that when you make things mandatory, the chance of them not being done would be greater. Philanthropist Rohini Nilekani strongly opposed mandatory CSR believing that it was just outsourcing of governance. She felt that if wanted, the corporations should be taxed and the money put into social programs but that CSR should not be dictated. Corporate giants, TATA and BIRLA, have practiced Corporate Social Responsibility actively, decades before the term CSR became popular in India. Even still, CSR remains misunderstood in the Indian Development Sector. Only a few private and public companies apply CSR and those that do tend to have International shareholding from countries where CSR is considered a business best practice. India attempted to follow in the footsteps of Indonesia and Mauritius by imposing mandatory CSR regulations, the only other country to have actively considered such enforcement. It seems evident from the various researchers and the review of the various approaches and overseas experiences that there is a marked difference in the concept and interpretation of CSR world-wide. Mauritian Context In Mauritius, private organisations are reputed to have an extended culture and tradition of CSR, principally in terms of voluntary social engagement in the communities where they operate and in the society at large. They have participated and contributed over the years to the social and environmental development of the country. Previous survey reports published by the Mauritius Employers Fund (MEF) in 2006 and 2008 indicate that Mauritian businesses in their large majority believe that their role in society extends beyond wealth generation and that pursuing economic interests needs to be balanced with social and environmental responsibility. Indeed, Mauritian enterprises have been engaged in both internal and external CSR, driven mainly by ethical considerations, employee motivation, company reputation and brand positioning. They have also taken into consideration benefits of employees and engaged in external CSR initiatives by contributing and supporting social and community relate d activities. The MEF Surveys have also shown that CSR has followed a rather philanthropic approach, characterised by informal activities, unrelated to business operations and strategy. The recent economic and financial crisis has led to a rise in the level of involvement of governments in the operation of the business sector across the world. There is also an emerging debate in the Corporate Social Responsibility literature with regards to the role of the state in the business relationship. Despite the efforts made by government and International agencies, the global poverty problem is worsening day by day. Thus, the contribution of organisations to Corporate Social Responsibility for the creation of a better society is rising. Corporate Social Responsibility Mandatory in Mauritius According to Y.Ramtohul (Sept 2011), on one hand, in Mauritius, all companies such as those holding a Category 1 Global Business Licence under the Financial Services Act, banks in Mauritius whose income is derived from banking transactions with non-resident or corporation holding a global business license under the financial, IRS companies as mentioned in the investment promotion ( Real Estate Development Scheme) Regulations 2007, as well as any non-resident societe , a trust or a trustee of a unit trust scheme are exempted from mandatory obligation from contributing to the CSR fund. On the other hand , all other companies incorporated and registered at the Registrar of Companies of Mauritius have to contribute 2% of their annual book profits to the CSR fund as provided by the S 50L of the Income Tax of Mauritius ( Act 16 1995). According to the S 50L of the same Act the 2 % that goes to the CSR fund shall be used to either implement an approved programme by a company, an approved programme under the National Empowerment Foundation or to finance an approved NGO. It is the responsibility of the CSR committee to review these programmes or NGOs to be financed as set up under the S 50 L section of the Income Tax in order to have a better control and transparency about the investment made. It is also interesting to understand that if, in respect to a year, the amount paid out to the CSR fund is less than 2% then the difference shall be remitted as an income and will be taxed at the end of the financial year. Statutory Requirements As from July 2009, companies in Mauritius therefore have the legal obligation to contri