Is there juristification for any business to be excused and ethical responsibility
Core Terms:
CSR emphasizes the obligation and accountability of business to society. Corporate Social Responsiveness emphasizes the action or activity taken. Corporate Social Performance emphasizes the outcomes or results achieved. Corporate Citizenship is the umbrella term that embraces all three.
Historical Evolution:
It started with the Economic model, where the “invisible hand” of the market was believed to protect society on its own. This was followed by the Legal model, where laws were relied on to protect societal interests. Later, philanthropy, community obligation, and paternalism were added (example: Milton Hershey). From the 1950s to present, CSR has broadened to include stakeholder-based components.
Key Frameworks:
McGuire defined CSR as economic and legal obligations plus responsibilities to society that go beyond these. Epstein said CSR is about whether the outcomes of corporate decisions have beneficial rather than adverse effects on stakeholders, making the normative correctness of actions central. Social Contract Theory (Donaldson) views the relationship as a tacit contract where society grants the firm rights in exchange for it fulfilling responsibilities. Stakeholder Theory (Freeman, 1984) defines a stakeholder as any group or individual who can affect, or is affected by, the achievement of an organization’s purpose, and argues it is in the firm’s strategic interest to respect all stakeholders.
Carroll’s Four-Part CSR Definition⭐:
CSR is made up of Economic, Legal, Ethical, and Discretionary (Philanthropic) responsibilities. Economic responsibility is required by society and means being profitable. Legal responsibility is required and means obeying laws and regulations. Ethical responsibility is expected and means doing what is right, fair, and just. Discretionary/Philanthropic responsibility is desired and means being a good corporate citizen. These form a pyramid, with Economic at the bottom, then Legal, then Ethical, then Philanthropic at the top.
CSP Model (Carroll):
This model integrates three dimensions. First, the Social Responsibility Categories, ranging from economic to discretionary. Second, the Philosophy or Mode of Social Responsiveness, which moves from Reaction to Defense to Accommodation to Proaction. Third, the Social Issues or Stakeholders involved, such as consumerism, environment, discrimination, and safety. Nonacademic ways of measuring social performance include Fortune’s Most/Least Admired rankings, the Council on Economic Priorities Awards, Business Ethics Magazine Awards, and Walker Information research.
CSP-CFP-Reputation Link:
There are three ways to view this relationship. In the first, good Corporate Social Performance leads to a good Reputation, which then leads to good Financial Performance. In the second, good Financial Performance leads to a good Reputation, which then leads to good Social Performance. The third view sees all three as interacting with each other simultaneously. There’s also a Multiple Bottom-Line View, which says CSP affects a different “bottom line” for each stakeholder group — owners, consumers, employees, the community, and others.
Arguments Against CSR:
It restricts free-market profit maximization, business lacks the expertise to do social work well, it dilutes the primary business aim, it increases the power of business, and it can limit global competitiveness.
Arguments For CSR:
It addresses issues that business itself caused, it protects business’s own self-interest long-term, it limits the need for future government intervention, it makes efficient use of business resources and expertise, and it allows proactive management of issues before they become crises.
Global CSR Issues:
Labour issues include child labour, forced labour, the right to organize, and workplace safety and health. Environmental issues include water and air emissions and climate change. Human rights issues include cooperation with paramilitary forces and complicity in extra-judicial killings. Poverty alleviation issues include job creation, generating public revenues, and transferring skills and technology.
CSR Drivers:
Globally, the main drivers are NGO activism, responsible investment, litigation, and government action. In developing countries, drivers include pressure from foreign customers, domestic consumers, foreign direct investment, and government. NGO activism is made easier by the internet, media, and low-cost travel, and it drives boycotts and brand damage — for example, the Shell boycott in Nigeria and the Nike/Gap boycotts.
UN/International Frameworks:
These include the UN Global Compact, the UN Principles for Responsible Investment, the UNEP Equator Principles, the ILO’s Tripartite (MNE) Declaration, the UNHCHR’s work on Business and Human Rights, the UNODC’s Anti-Corruption work, and UNCTAD’s Corporate Responsibility Reporting and World Investment Report. The main reporting standards are the GRI (Global Reporting Initiative) and ISAR (a UNCTAD project).
CSR Management:
A systems approach requires binding guidelines, clear corporate goals, and a defined organizational structure — this is the philosophy followed by Deutsche Telekom. A typical governance structure runs from the Board of Directors down to the President/CEO, then to a Corporate Responsibility Officer (who reports alongside Group Presidents, the CFO, VP-HR, and General Counsel), supported by a Steering Committee and the Board’s Audit Committee. This is often managed using the PDCA Method:
Plan means consulting stakeholders, establishing a code of conduct, and setting targets. Do means setting up management systems and personnel and promoting compliance. Check means measuring progress, auditing, and reporting. Act means taking corrective action and reforming systems where needed.
Sphere of Influence:
This has three dimensions. “Who” is the Association Sphere, which widens out from suppliers to the core firm to customers, government, and joint venture partners. “What” is the Issue Sphere, covering things like price, quality, and human rights, again widening out from the core firm. “How” is the Operational Sphere, covering project design, feasibility studies, construction monitoring, employment practices, marketing, and investment due diligence.
ISO 26000 – 8 Principles of Social Responsibility:
These are ethical behaviour, respect for the rule of law, respect for international norms, respect for stakeholder interests, accountability, transparency, taking a precautionary approach, and respect for human rights. The core subjects it covers are organizational governance, human rights, labour practices, the environment, fair operating practices, consumer issues, and community development. The suggested roadmap is: define the scope, integrate it into the organization, work with stakeholders and communicate, implement it in daily practice, evaluate performance, and then enhance credibility.
CSR IN INDIA — Companies Act 2013, Section 135 :
A company must set up a CSR Committee if it meets any ONE of these thresholds: net worth of ₹500 crores or more, OR turnover of ₹1000 crores or more, OR net profit of ₹5 crores or more.
The CSR Committee must have 3 or more directors, and at least 1 of them must be an independent director.
The Board’s report must disclose how the committee is constituted. The Committee’s role is to formulate the CSR policy and recommend which Schedule VII activities to undertake, recommend how much should be spent, and monitor the policy periodically.
The Board of Directors is responsible for approving the CSR policy, ensuring it is implemented, disclosing the contents of the policy in the Board’s report, placing the policy on the company’s website (if it has one), and ensuring that CSR spending is at least 2% of the average net profit of the preceding three financial years. If there is a shortfall, the Board’s Report must explain the reasons for not spending the full amount — but importantly, there is no penalty for failing to meet the 2% target. Examples of Schedule VII activities include eradicating extreme hunger and poverty, promoting education, promoting gender equality and women’s empowerment, reducing child mortality and improving maternal health, combating diseases like HIV/AIDS and malaria, ensuring environmental sustainability, promoting employment-enhancing vocational skills, supporting social business projects, and contributing to the PM’s Fund, Central/State relief funds, or SC/ST welfare funds.
PART 2: CORPORATE GOVERNANCE — BOARDS & DIRECTORS , Why Directors Exist:
A company is an artificial person — it is invisible and intangible and exists only in the eyes of the law — so it needs real humans to act on its behalf. There is no official statutory definition of “director”; broadly speaking, it refers to anyone who occupies the position of a director, no matter what they are actually called.
Classification of Directors⭐:
A Deemed Director is someone who was not formally appointed, but the board is accustomed to acting on their directions anyway. A De-facto Director is also not formally appointed, but they openly act as, and assume the role of, a director. A Shadow Director is the opposite of a de-facto director — they hide the fact that they are controlling the company, acting like a “puppet master” behind the scenes. A First Director is appointed by the promoters as per the Articles of Association. An Additional Director holds office only until the next AGM and is a quick way to add a competent person to the board. An Alternate Director acts in place of a director who is absent for three months or more from the state where board meetings are held; their term cannot exceed the original director’s term. A Casual Director (or Ad-hoc Director) fills a vacancy caused by things like death, resignation, disqualification, removal, insanity, or insolvency, and serves for the remainder of the original director’s term. An Executive Director is in the day-to-day employment of the company, while a Non-Executive Director is not employed by the company and serves more as an outside, part-
time member. A Nominee Director is appointed by a third party, such as a financial institution or bank that has provided finance to the company. A Small Shareholders’ Director is elected specifically by small shareholders — those holding shares of nominal value up to ₹20,000, with a minimum of 1000 such shareholders required to elect one; this director is not liable to retire by rotation, can serve a maximum of 3 consecutive years, and cannot hold this role in more than 2 companies at the same time. A Managing Director is entrusted with substantial powers of management, while a Whole-Time Director is simply in the whole-time employment of the company.
Independent Directors⭐⭐
By definition, an independent director is not a managing director, whole-time director, or nominee director. In the board’s opinion, they must be a person of integrity with relevant expertise and experience; they must not be a promoter of the company or any of its associates; they must not be related to the promoters or directors of the company or its associates; they must have no pecuniary relationship with the company or its associates; and neither they nor their relatives should hold a key managerial position, be or have been employees of the company’s audit or legal firm, have had transactions worth more than 10% of the company’s gross turnover, hold more than 2% of the total voting power, or be the CEO or director of a nonprofit that receives 25% or more of its income from the company or its associates.
Some key rules: in listed companies, at least one-third of the total directors must be independent directors. Independent directors are not allowed to receive stock options, though they can receive sitting fees, reimbursement of expenses, and a profit-related commission if approved by the members. Each term lasts 5 consecutive years, and an individual can serve a maximum of 2 consecutive terms.
Number of Directors:
The minimum required is 3 for a public company, 2 for a private company, and just 1 for a One Person Company. For the top 1000 listed entities (from April 1, 2019) and the top 2000 (from April 1, 2020), SEBI’s LODR regulations require a minimum of 6 directors. The maximum allowed under the Companies Act is 15, though more can be appointed by passing a special resolution. A share qualification (minimum shareholding to be a director) is not required unless the Articles specifically demand it, and if they do, it cannot exceed ₹5,000 in nominal value. An individual is limited to holding directorships in a maximum of 20 companies, with further sub-limits on how many can be public versus private companies.
Appointment & Removal
Directors can be appointed by promoters (in the case of first directors, through the Articles), by the Board itself (for additional, casual, or alternate directors), by shareholders (for regular Board appointments), by the Tribunal (in cases involving oppression or mismanagement), or by third parties such as financial institutions, foreign collaborators, holding companies, or lenders. Directors can be removed by the shareholders, by the Central Government acting through the Tribunal, or directly by the Tribunal itself. If a director wants to resign, they must give written notice to the company and send a copy to the Registrar within 30 days. If it’s an independent director resigning, they must also send detailed reasons along with confirmation that there is no other material reason for leaving, and this must go to the stock exchange within 7 days.
Regarding proportionate representation, which protects minority shareholders: ordinarily, a group holding 51% of shares can elect the entire board. To prevent this, two voting methods exist. Under the Single Transferable Vote method, the quota is calculated as (Votes Polled + 1) divided by (Number of Seats + 1). Under Cumulative Voting, the quota is calculated as Total Votes Polled multiplied by (Shares multiplied by the number of Directors to be elected), divided by the Number of Seats.
Key Managerial Personnel (KMP):
Any company with a paid-up capital of ₹10 crore or more must appoint, as whole-time Key Managerial Personnel: a Managing Director, CEO, or Manager (or a Whole-Time Director if none of these exist), along with a Company Secretary and a CFO. One person cannot hold two KMP positions at the same time. A “Manager” here refers to an individual who manages the whole, or substantially the whole, of the company’s affairs, under the superintendence of the Board. A few rules to remember: a company cannot have an MD and a Manager at the same time; only one Manager is allowed; multiple Managing Directors are allowed; and it is fine to have a Whole-Time Director plus a Manager, or an MD plus a Whole-Time Director, at the same time.
Powers of the Board⭐:
The Board’s powers can only be exercised collectively, through proper board meetings — individual directors have no general power to act on their own. If shareholders are unhappy with how the board is functioning, their main remedy is simply to remove the directors, as allowed under the Articles or the Act.
Certain powers must be exercised only through resolutions passed at board meetings. These include making calls on unpaid shares, authorizing buy-backs, issuing securities, borrowing money, investing company funds, granting loans or guarantees, approving financial statements and the Board’s report, approving business diversification, approving mergers and acquisitions, and approving the takeover of companies or acquisition of a substantial stake in another company.
There are also additional powers listed under the Companies (Meetings of Board and its Powers) Rules, 2014. These include making political contributions, appointing or removing key managerial personnel, taking note of appointments made below the KMP level, appointing internal auditors, noting disclosures of directors’ interests and shareholdings, buying or selling investments where the amount involved is 5% or more of the paid-up capital and free reserves, deciding on public deposits (whether to invite, accept, renew, or change their terms), and approving quarterly, half-yearly, and annual financial statements.
Legal Position of Directors:
As agents, directors bind the company (the principal) when they enter into contracts in the ordinary course of business — the directors are not personally liable for these. As trustees, they owe fiduciary duties to the company and must act in good faith. As employees, this only applies when a director is actually employed by the company, such as a Managing Director or Whole-Time Director. They are not considered mere servants, since they act more like managers or managing partners. And individually, a single director has no power to act on behalf of the company unless the Board has specifically granted them authority through the Articles.
Corporate Governance Triangle:
This describes the relationship between Shareholders, the Board, and Management. Shareholders relate to the Board through elections, disclosure rights, and investor relations. The Board’s role is oversight, setting policy and planning, and mediating or resolving conflicts. Management relates to the Board through business strategy and performance, investment decisions, and decisions on dividends and growth.
Structural Conflicts in Governance:
When there is a dominant shareholder, the victims are minority shareholders, who suffer from related-party transactions and unequal rights. When there is a dominant manager, the victims are shareholders as a whole, who suffer from unreasonable agency costs, misuse of company assets, and opaque “black box” operations. When there is a dominant shareholder who is also the manager, all stakeholders suffer, since both of the above problems combine. This is exactly why an independent check and balance mechanism is so essential.
Independence: Fact vs. Action:
A director is not considered independent in fact if they are an employee, a family member of executives, have direct financial compensation ties to the company, have an auditor relationship, hold interlocking directorships, or have current or recent business relationships with the company. Whether a director is independent in action depends on factors like who nominated them, how much power they’ve actually been given, whether they have direct access to information and shareholders, how much leverage they have from auditors or outside experts, their compensation structure, and how much external scrutiny they face. Regulation of this tends to fall somewhere on a spectrum from purely voluntary, to “comply-or-explain,” to fully mandatory.
Independent Board ≠ Effective Board⭐:
A lack of independence can seriously damage a company, but having independent directors alone does not guarantee success. For a board to actually be effective, it also needs a clear and well-chosen strategy, the ability to execute that strategy well, the ability to respond quickly to sudden changes, and the ability to carry out successful mergers and acquisitions.