CORPORATE GOVERNANCE MODEL

&
THE ROLE OF CORPORATE SOCIAL
RESPONSIBILITY FOR DEVELOPMENT:
SOUTH ASIAN PERSPECTIVE

Paper For The Second South Asian

Economics Students Meet 2005
Organized By Lahore University of Management Sciences

Paper Submitted by:

MOHAMMAD MONIRUL HASAN

Student of 3rd Year
Department of Economics
University of Dhaka
Bangladesh.

December 2004
 OBJECTIVES

In the context of developing economics, Corporate Governance has its apparent importance
for the economic health of corporations and society in general. Under the concept of
Corporate Governance, Corporate Social Responsibility can play a vital role in the
development process and produce an overall positive impact on society. The first objective of
this paper is to highlight the role of CSR in the context of South Asian angle of vision. We
will try to give some evidences in this respect. The second objective of this paper is to show
whether the western corporate governance model size fit for all countries or not. Here we will
see some evidences on some Western countries and Asian countries. We will also try to find
out some impediments that make it divergence to the western model. Then we will present a
optimal model or ideal model which can be suitable for any country as well as South Asian
countries and try to focus on its various wings. Later on, we will try to show some case
studies concerning the South Asian region and their performance in CSR for development.
 LIST OF ABBREVIATIONS

ACGA Asian Corporate Governance Association

ADB Asian Development Bank
CEO Chief Executive Officer
CG Corporate Governance
CSR Corporate Social Responsibility
GCGF Global Corporate Governance Forum
NGO Non Government Organization
OECD Organization of Economic Co-operation and Development
SAARC South Asian Association for Regional Cooperation
WB World Bank
 CONTENTS

Subject Page No.

INTRODUCTION 01

PART- A:

Definition of Corporate Social Responsibility 01

The Role of CSR in South Asia 02
Arguments for CSR 04
Criticisms of CSR 05
Impediments to implement CSR in south Asia 06
The role of government in encouraging socially responsible behaviour 07

PART- B:

Definition of corporate governance 08

Elements of corporate governance 08

SECTION ONE:

Description of a western corporate governance model 09

Arguments against convergence of CG models 10
Empirical evidence of being different models in different countries 10
Points of divergence of CG models in case of South-East Asia 11
Comparative analysis on corporate governance 13

SECTION TWO:

Principles of good corporate governance 14

Five Golden Rules 15
A summary of the methodology 15

CONCLUDING NOTES 17

APPENDIX 18

REFERENCE 29
 APPENDIX

Subject Page No.

• Figure 1: Structural model of corporate governance 18

• Figure 2: The stakeholder approach and the strategy process 19
• Case study 1: Green drive by Coke at Tirupati, India 20
• Case Study 2: CSR in INDIA 21
• Case Study 3: Unocal reaches out to children in Moulvibazar in Bangladesh 22
• Case Study 4: Levis gives away $285,000 for women & youth in India 23
• Case Study 5: Bangalore IT companies is making long-term financial commitments
under their CSR programs 24
• Case Study 6: CSR in Bangladesh-Some evidences 25
 EXECUTIVE SUMMARY

In preparing this paper we segregate our discussion into two segments. These are:

• Part A: This segment comprises the definition of corporate social responsibility

(CSR), its role in South Asian development, arguments, criticisms, evidence,
impediments to implement and social impact.

• Part B: In this segment we will discuss on Corporate Governance Models. There are
two sections here. In section one we will present particular western corporate
governance model does not fit for all countries. In section two we will present an ideal
model and its characteristics and policy recommendation.

In Appendix two figures are included which represent a Western Corporate

Governance model and a ideal model which can be suitable for any country as well as
South Asian countries. We also include some case studies on Corporate Social
Responsibility (CSR) which are related in the context of South Asian development.
INTRODUCTION

At the micro-level in bringing the utmost optimization of the management process, the primal
presumption of excellence of a management in every national economy is essentially
expected. The ongoing globalization of the world economy has spread such important
elements of its structure as the internal and operational industrial management, which can
help the owners of having the assurance of the rate of return of the invested resources and
making the society better off. For the enhancement of its worldwide competitiveness, each
country and each global region has to build up such government mechanism known as
corporate governance. It is the process in which the investors are assured of getting their rate
of return from the managerial department where all are intermingled with laws and
regulations. In corporate governance system there is a phrase ‘Corporate Social
Responsibility (CSR)’ means performing social welfare in different stages. In eradicating
poverty, providing education, sponsoring any cultural activities, offering scholarship to
meritorious students, allotting relief to the distressed of natural calamities, CSR play a vital
role in their respective arena and over the world as well. However it is a big question whether
the western corporate governance model will suit all countries. From empirical evidence and
practical knowledge it is widely regarded that one size of model does not fit all. A western
corporate governance model can be appropriate for a particular country but does not convey
any good message for other countries. For this each country has developed her own corporate
governance model considering her own cultural and socio-economic performance.

PART A

Definition of Corporate Social Responsibility

Corporate social responsibility is tended to be defined as “putting something back into the
community” and was generally seen as a duty incumbent on those in a more favorable
position in society to help those less well placed than themselves. We can take CSR as :
 a voluntary activity in excess of legal compliance
 concerned with the social and environmental as well as economic aspects of
organizational behavior
 rooted in ethical values
 central in shaping stakeholder relationships.

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At an organizational level each enterprise will have a unique response to CSR according to
factors such as its resources, core competencies, management preferences and stakeholder
interests as well as the broader historical, cultural and social environment in which it exists
and operates.

The World Business Council for Sustainable Development in its publication "Making Good
Business Sense" by Lord Holme and Richard Watts, used the following definition.
"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"

The Roles of CSR in South Asia

The region of South Asia – comprising Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan
and Sri Lanka– is home to one-quarter of the earth's population and some of its poorest states.
All these countries have almost the similarity in their cultural and social angle of vision .
Today enlightened companies understand the need for having a comprehensive corporate
social responsibility (CSR) agenda. This has brought into focus non-financial issues such as
business ethics, community service, corporate governance and workplace issues. The four
pillars of CSR are, in our opinion, community investment, employee relations, environmental
practices and ethical conduct. The works that conducted here are as follows:

• Child healthcare: This is the most essential work in the South Asian development.
Many companies playing this CSR in the South Asian region such as –Biocon ,
Unilever etc.
In India these drives are conducted in over 20 surrounding villages and will cover
over 10,000 infants. In addition, over 35,000 school children from the ages of five to
15 from nearby village schools have also been vaccinated against Hepatitis B.
• Primary education: In the process of enlightening the poor people many
organizations are playing CSR here. They mostly provide primary education.
• Scholarship: CSR play an important role by providing scholarship to the meritorious
students and encourage them. Being a knowledge driven enterprise, Biocon, in India
offers scholarships, awards and practical assistance to the economically
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 disadvantaged. They have assisted in the construction of schools, installation of
science laboratories and libraries, buying computers and providing free computer
training for teachers in rural schools.

• Environmental work: Environmental safety is also of utmost importance to us and

Biocon actively assists the Bangalore Agenda Task Force (BATF) in keeping the city
clean. They have installed eco-friendly traffic booths and bus shelters in Bangalore.
Biocon also provides water supply to the surrounding village community. Currently,
they are in the process of establishing the Biocon Foundation that will focus on
providing affordable and quality healthcare services for the under-privileged across
the country.

• Health Insurance Program: CSR play an important role by providing low cost
Health Insurance Program aimed to serve the needs of rural families who are often
devastated by medical costs associated with expensive hospitalization and surgical
interventions. The pilot program envisages a network of hospitals and clinics in
Bangalore, which will cover 3,00,000, people in Anekal taluka in the first phase. The
aim is to be able to replicate this nationwide and eventually worldwide.

• HIV/AIDS awareness: Many organizations are playing important role in the

vulnerable areas to aware them about AIDS. Especially the young generation and the
ignorance people in the South Asian countries.

• Ensuring human rights: CSR playing a vital role in providing human rights to the
vulnerable people. In South Asian countries there are many people who are living
below poverty line income and they cannot afford their basic needs. CSR in the South
Asian countries is playing a vital role in this respect.

• Sponsoring: In every country many corporate companies are playing a vital role by
sponsoring many sports, cultural activities, etc. In Bangladesh, Grameen Phone,
Pepsi, Coca cola, Samsung etc. are doing this type of jobs.

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 • In natural calamities: In natural calamities, CSR plays an important role providing
the distressed people money, foods, shelter, and water etc. and save the life of the
people.

• Beautification: CSR play this role in many countries in the South Asia . In
Bangladesh the work is still running for the coming SAARC summit.

It is essential that it is inherent responsibility to fulfill the role as educators, trainers, business
leaders and development professionals and contribute to the nation’s progress. There are huge
scopes of CSR in the Third World countries like ours. No goal is too big; no step is too
small.
[Note: Evidences of some CSR programs are included in Appendix as case studies.]

Arguments for CSR

There are so many arguments for CSR. These are-

i) Changed public expectations of business: Public needs have changed, leading to changed
expectations. Therefore if business wishes to remain viable in the long-run, it must receive its
charter from society and responds to society’s needs and give society what its wants.
ii) Better environment for business: The creation of a better social environment benefits
both society and business. Society gains through better neighborhoods and employment
opportunities; business benefits from a better community, since the community is the source
of its work force and consumer of its products and services.
iii) Avoidance of government regulation: Social involvement discourages additional
government regulation and intervention. The result is greater freedom and more flexibility in
decision making for business.
iv) Balance of responsibility with power: Another argument for social responsibility by
business is that business has a great deal of power that, it is reasoned, should be accompanied
by an equal amount of responsibility.
v) System interdependence requires social concern: Modern society is an interdependent
system and the internal activities of the enterprise rave an impact on the external
environment.
vi) Stockholder interest: Another argument for social responsibility is that it is in the
interest of the stockholder for business to engage in certain kinds of responsible behavior.

4
vii) Problems can become profits: If business’s innovative ability can be turned to social
problems, many problems could be handle profitably according to traditional business
concepts. So items that may once have been considered waste( for example soft-drink cans)
can be profitably used again.
viii) Public image: Social involvement creates a favorable public image. Thus, a firm may
attract customers, employees and investors.
ix) Let business try: Business social responsibility should try to solve the problems that
other institutions have not been able to solve. After all, business has a history of coming up
with novel ideas.
x) Business has the resources: Business should use its talented managers and specialists as
well as its capital resources to solve some of society’s problems.
xi) Socio-cultural Norms: Another argument for social responsibility is that of socio-cultural
norms. So the businessman operates under a set of cultural constraints in the same way that
another person in society does. In this manner the manager is guided to pursue profit in ways
which are socially responsible.
xii) Prevention is better than curing: It is better to prevent social problems through
business involvement than to cure them. It may be easier to help the hard-core unemployed
than to cope with social unrest.

Some of the points that have been mentioned have rigorous theoretical framework than others
and several of them overlap, but taken as a whole, they are a powerful argument for business
assumption of social responsibilities.

Criticism of CSR

There are some criticisms of CSR. These are-

i) Profit maximization: The primary task of business is to maximize profit by focusing
strictly on economic activities. Social involvement could reduce economic efficiency.
Perhaps the most powerful argument against business assumption of social responsibilities is
the classical economic doctrine of profit maximization. This doctrine was presented by Adam
Smith in 1776 and has influenced economic thinking since then.
ii) CSR is Inappropriate: Economist Milton Friedman has argued strongly for years that
social responsibility is inappropriate corporation action as no firm would sell food below cost

5
to help the poor people. The large enterprise can have money to exercise social responsibility
only if it has a monopoly position as monopoly prosecuted under the antitrust law.
iii) Business cost of social involvement: Society must pay for the social involvement of
business through higher prices. Social involvement would create excessive costs for business
which cannot commit its resources to social action.
iv)Weakened international balance of payments: Social involvement can create a
weakened international balance of payments situation. The cost of social programs, the
reasoning goes would have to be added to the price of the product. For example, American
companies selling in international markets would be at a disadvantage when competing with
companies in other countries that do not have these social costs to bear.
v) Lack of social skill: Businesspeople lack the social skills to deal with the problems of
society. Their training and experience is with economic matters and their skills may not be
pertinent to social problems.
vi) Business has enough power: Business has enough power and additional social
involvement would further increase its power and influence.
vii) Lack of accountability: There is a lack of accountability of business to society. Unless
accountability can be established, business should not get involved.

Impediments to implement CSR in south Asia

In Sept 2002, IndianNGOs.com research on CSR involved meetings with corporates who
have and who do not have CSR Programs and the research revealed some reasons why
corporates have some reservations about investing in Traditional CSR Programs. The reasons
are as follows-

i) Financial Reasons - Budget Restrictions

Many Corporates cite this as the major reason why they do not have CSR Programs.
In this category, one can also include Companies in the Manufacturing Sector / Engineering
Sector which invested in CSR earlier but do not have CSR Programs now, because of
Economic pressures.

ii) Lack of understanding that small budgets are enough

Most of the companies feel that CSR is a costly exercise and one must have huge budget
outlays to make an impact.

6
Contrary to this, there is a list of smaller projects where the Companies can make bigger
impacts.

iii) Lack of understanding of non financial giving

Most of the corporates do not consider non-financial giving as an integral part of CSR.
Corporates invariably think that CSR means money out flow.

iv) Unnecessary diversion of attention

Some Young and Entrepreneur driven Corporates think CSR unnecessarily diverts the
attention of the employees.

v) Suspicion about NGOs

Corporates are not sure how their funds will be utilized by the NGOs.

Some Corporates think that NGOs want only money and not involvement. And they also
want to take credit for the entire project.

vi) Management of NGOs

Corporates at times feel that NGOs are family managed (husband/wife) organizations.
The succession planning of the NGOs is a major worry for Social Investors. So there is a
great need for NGOs to improve their Credibility and Visibility in the Corporate Sector.

The roles of government in encouraging socially responsible behaviour

When prompted, most respondents expressed the view that government could be instrumental
to some degree in encouraging socially responsible behaviour in organizations, although the
answers tended to be rather generalized and often vague.
Suggestions included:
• tax relief for donations
• matched government funding
• schemes to educate and raise awareness of CSR issues
• more information on environmental grants.
In general, the expressed preference seemed to be for government to play the role of
‘supporter’ and ‘enabler’ rather than ‘director’ of CSR.

7
 PART B

Definition of Corporate Governance

In general corporate governance is the system by which business corporations are directed
and controlled. It is a field in economics that investigates how to secure efficient management
of corporations by the use of incentive mechanisms, such as contracts, organizational designs
and legislation. It try to improve financial performance by different participants in the
corporation, such as, the board, managers, shareholders and other stakeholders and spells out
the rules and procedures for making decisions on corporate affairs as well as distribute rights
and responsibilities among them. Good corporate governance contributes to sustainable
economic development by enhancing the performance of companies and increasing their
access to outside capital. Economists view about CG-

“Some commentators take too narrow a view, and say it (corporate

governance) is the fancy term for the way in which directors and auditors
handle their responsibilities towards shareholders. Others use the expression
as if it were synonymous with shareholder democracy. Corporate governance is
a topic recently conceived, as yet ill-defined, and consequently blurred at the
edges…corporate governance as a subject, as an objective, or as a regime to be
followed for the good of shareholders, employees, customers, bankers and
indeed for the reputation and standing of our nation and its economy” [Maw et
al,1994, page 1].

Elements of corporate governance

Corporate Governance consists of two elements:-
1) The long-term relationship which has to deal with checks and balance, incentives for
managers and communications between management and investors.
2) The transactional relationship which involves dealing with disclosure and authority.

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 SECTION ONE

Description of a western corporate governance model

In general, western corporate governance model comprising four key factors. These are:

a) Subjects: Western CG model is formed by shareholders, managers, government and

investors and these are included in subjects.

b) Objects: Western CG works on joint stock enterprises, dividends and intercourse with
the external environments which are referred in objects.

c) Goals: Western CG Model includes 3 types of general goals-

 Increase the effectivity and profitability,
 Attract investment,
 Harmonize the participants’ to increase interest of individuals’
motives.

d) Mechanism of realization: To create a realistic mechanism Western CG forms

management bodies and separates their power, makes procedures and rules, ensures
shareholders’ access to information, regulates information disclosure by joint stock
enterprise and regulates joint stock enterprise general meetings arrangement. Here,
regulation of the joint stock enterprise general meetings arrangement comprises-
 regulation of election process into joint stock enterprise governance bodies,
 regulation of mandatory commission functioning,
 regulation of the meeting arrangement,
 regulation of the voting procedure.

In Figure-1, It is given a structure model of the corporate governance.

[See Appendix]

Now we try to find out some evidences whether the western CG model differs according to
different countries. It is widely believed that “one size does not fit all” as legal systems,
business cultures and corporate structures are different even among developed nations like

9
North America and Europe. The OECD reflects this view in the preamble to its “Principles of
Corporate Governance”, where it states: “There is no single model of good corporate
governance.”1 More recently, the Global Corporate Governance Forum (GCGF) formed by
the World Bank and OECD, has been debating on whether it should promote developed-
country governance standards or allow emerging markets to “be scored against guidelines
crafted by them and shaped for their conditions, rather than against standards they had no role
in writing”* Despite the globalization of standards in many areas of the economy, this
argument holds powerful sway.

Arguments against convergence of CG models

There are three major arguments that provide a great logic against convergence of different
countries CG models into a single model.
First, corporate governance systems are tightly coupled with countries regulatory traditions
such as banking, labor, tax and competition law which vary from country to country and are
unlikely to be modified in the near future.
Second, corporate governance systems do not exist in isolation of other institutional features
directly related to the ways in which firms compete in the global economy.
Third, global pressures on corporate governance practices are mediated by domestic politics
in ways that make convergence across countries rather unlikely.

Empirical evidence of being different models in different countries

Early students of corporate governance argued that shareholder rights and the sharp
separation of dispersed ownership from managerial control were inevitably more ‘efficient’
and ‘modern’ than alternative models such as family firms, conglomerates, bank-led groups
or worker co-operatives and would become widespread (Berle and Means 1932; Kerr et al.
1964). In particular, given the dominance of American business from the end of World War
II to at least the 1970s, it was expected that the American corporate governance model would
dispersed ownership, strong legal protection of shareholders and indifference to other
stakeholders, little reliance on bank finance, relative freedom to merge or acquire so that it
would be the best practice throughout the world. But American governance system which is
characterized by its shareholder-centered CG model with weak financial intermediaries and
1
1“OECD Principles of Corporate Governance”, Preamble, p 2. (www.oecd.org/daf/governance/principles.html)
*.Global Proxy Watch, “Stumble”, January 14, 2000.

10
well-developed capital markets is unlikely to take over the world any time soon. The rise of
Germany and Japan as formidable manufacturing powers from the 1960s to the 80s, cast
serious doubt on the superiority of the American model of corporate governance. The reasons
are-
 Different corporate governance systems are associated with peculiar
managerial decision-making criteria, temporal orientations and diachronic responses
to the business cycle.
 The chances that stock markets in the world are uncorrelated with each other
increase with the diversity in patterns of corporate governance.
 The persistence of deep and momentous cross-national differences in CG in
the face of globalization is a puzzling phenomenon to some.
 Moreover, multilateral organizations and the financial media seem to be
unable to come to terms with the diversity of the world.

However, the experts assembled by the OECD point out that such a convergence are not
towards the US approach but towards a middle ground between the shareholder and
stakeholder-centered models (Fleming, 1998). The OECD advisory group concludes that
“the practical corporate governance agenda in different countries is converging in many vital
areas, although historical and cultural differences will continue to exist” (1998a:87). Adding
to the confusion, other OECD studies have concluded that “it is not productive to argue
whether any system of governance is inherently superior to others” and that “systems are
‘path specific’.” (1995:29).

Actually, CG models of different countries fit their legal, institutions, political circumstances
and make their position in the global economy. Moreover, convergence is unlikely because
any process of change, whether induced by globalization or not, takes place in a political
context.

Points of divergence of CG models in case of South-East Asia

The divergence of CG models in case of South-East Asian countries occurred on the basis of
three general concepts these are:

 Stakeholders concept

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  Board structure concept
 Regulatory or legal style or code concept

 Stakeholders concept: Different countries practiced different principles such as-

 China, Korea, Japan and Thailand- explicitly subscribe to this ‘stakeholders’
principle.
 Singapore ,Malaysia –recognize the social impact of corporation but do not
emphasis ‘stakeholders’ within the governance context.
 Singapore – uses other means such as legislation to protect employees,
creditors and customers.
 Malaysia-encourages boards to be responsible for relations with ‘stakeholders’.
But stresses that they are accountable to the shareholders.

 Board structure concept: Under this concept it is considered to have two types of
boards- single tier boards and two tier boards. Most countries have the former.
Interestingly, Korea, despite the historic influence of Japan, does not have two-tier
boards. While Thailand is alone in considering moving from single-tier to two-tier (it
sees this as a way to enhance board independence).

 Regulatory or legal style or code concept: It comprises first, how big is a countries
code (in terms of volume words), Second how narrowly or broadly it is focused. Both
Hong Kong and Singapore have small codes that are limited in scope. Hong Kong’s
code is about a page and a half long and is extremely general. Singapore’s current
code is a similar length and only focuses on audit committees. At the other end of the
scale is the new code of Korea which runs to about 40 pages and covers each aspect
of governance comprehensively.

In conclusion it can be said that Asia’s two international finance centers are, by nature, more
pragmatic than idealistic and more likely to implement reform in a business-friendly that is
incremental manner rather than through grand gestures. Alec Tsui,(Chief Executive of the
Stock Exchange of Hong Kong,)said that regulators must strike a balance between over- and
under-protecting investors. Alec Tsui also comments- “Regulators in some developed
markets have perhaps erred in the direction of acting too much as “Nanny” to the market, or
of inhibiting commercial flexibility with copious rules and regulations. Our philosophy in
12
Hong Kong is to adopt a practical and non-bureaucratic approach, as far as this is possible.
Above all, we seek to apply the spirit of the rules, rather than mechanistically following their
letter.”2 Certainly, no one could accuse the Hong Kong government of being overly
aggressive in promoting corporate governance reform (although certain sections of
government, such as the Securities and Futures Commission, the market regulator, display a
much greater sense of urgency than other sections).

Comparative analysis on corporate governance

The literature on globalization and corporate governance contains important disagreements.

There are fundamental legal, institutional and political reasons why a convergence in
corporate governance models—especially on the Anglo-Saxon pattern—is not likely.
Scholars have found very little evidence suggesting convergence. The three arguments
against convergence in corporate governance—legal, institutional, political—provide enough
ammunition to cast serious doubt on the idea that there is a ‘best practice’ in corporate
governance. Our conclusion is that corporate governance systems are unlikely to converge
across countries as a result of globalization. Globalization, however, has made inroads over
the last half century, suggesting that it encourages countries and firms to be different, to look
for a distinctive way to make a dent in international competition rather than to converge on a
best model. Again a model is basically based on ethics which preserve the job of corporate
social responsibility(CSR).The practice of bribery and corruption in society is inimical
towards a healthy economy, and lack of ethical behavior in a company is inimical to trust. In
the western model it is assumed that laws and regulation will remain alright. Although there
are two kinds of preferences –shareholders approach , stakeholders approach and the political
influence are the impediments of implementing the model.

2
2. Alec Tsui, “Corporate Governance—Protecting Investor Interests”,
13 Business Week Roundtable, Hong Kong, October 30,
1999.
 SECTION TWO

Principles of good corporate governance

This is a model which is suitable for any country as well as South Asian countries. All the
‘goodies’ to a great degree, abided by this rules .All the ‘baddies’ to a large extent ignored
them. The principles underlying the rules are:

 Ethical approach – culture , society ,organizational paradigm

 Balanced objectives- congruence of goal of all interested parties
 Each party plays his part-roles of key players: owners /directors /staff
 A decision making process in placed based on a model reflecting the above giving due
weight to all stakeholders
 Stakeholders treated with equal concern- albeit some have greater weight than others
 Accountability and transparency to all stakeholders

Hence, with due respect to Milton Friedman who is quoted as believing that “the social
responsibility of business begins and ends with increasing profit” we contend that running
the business successfully is not simply about market domination or shareholder value. And
good corporate governance is not simply about a battle between distant, disloyal institutional
shareholders and greedy directors but about the ethos of the organization and fulfilling its
clearly agreed goals. These goals may be set by the entrepreneur who starts the business but
they are accepted by all parties as being high-minded and in everyone’s interests. There has
to be a process of identifying different needs and as much as possible harmonizing them. This
is the starting point for the smooth running of the business. Once dissonance in the common
goal creeps in, the danger of the standard of corporate governance deteriorating rises steadily.
Clearly external regulation can only play a limited part in ensuring threat such a deep-seated
and beneficial culture exists.

It takes the view that there is an over-riding moral dimension to running a business and that
the standard of governance will depend on the moral complexion of the operation. Hence the
approach developed is based on the belief that:
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 • the business morality or ethic must permeate the entire operation from top to
bottom and embrace all stakeholders.
• good corporate governance is an integral part of good management practice,
permeating the entire operation and not an esoteric specialism addressed by
lawyers, auditors and sociologists.

Five Golden Rules:

For good corporate governance five golden rules are vital. These are:
1. Ethics: a clearly ethical basis to the business.
2. Congruence of goals: appropriate goals, arrived at through the creation of a
suitable stakeholder decision-making model.
3. Strategic management: an effective strategy process which incorporates
stakeholder value.
4. Organization: an organization suitably structured to effect good corporate
governance.
5. Reporting: reporting systems structured to provide transparency and
accountability.

A summary of the methodology

1. Using the internal, external and stakeholder analyses, we can find out a balanced view of:
• Ethics: What the board thinks of the company’s ethical behaviors may not be the
same as what other stakeholders think- the differences may simply be due to lack
of communication but need to be reconciled. General views on ethics-what and
how important the issues are such as:
 Consideration and protection of the environment
 Fair trading, especially with poor countries
 Defending human rights, for example non-exploitation of workers in poor
countries
 Not investing in countries with unacceptable regimes
 Supporting local communities
 Fair treatment of staff
 • Goals: The crucial part of the process- if the company’s ‘agreed’ goal is found to
be significantly different from what stakeholders want, the goal will have to be
adapted or changed completely.
• Organization: The company has an organization capable of delivering good
15
corporate governance- from the stakeholders’ point of view. This means ensuring
accountability through direct contact with all stakeholders which may be unclear or
even unknown. There are two key elements to be considered when designing the
appropriate organization,- shape and style.
Shape: There are five basic types of organization structure:
 Simple
 Functional
 Multi-divisional
 Holding company
 Matrix

Style: There are three basic styles of management:

 Strategic planning
 Financial control
 Strategic control

• Reporting: Here we can find out how much the stakeholders know about the
business which can be compared with that they should know or what the board think
they know.

2. We can then feed the information gather back into the strategy model and use it to make
any changes necessary to:
• the ethical stance or the resources made available to improve the company’s image.
• the goal- the general direction in which the company is moving.
• the organization- this process automatically opens up communication channels if they
were lacking before but these will need to be rationalized; it will also have opened our
eyes to any structural or operational inefficiencies, etc which are affecting our
stakeholders.
• reporting systems- having opened up these channels, it is then possible to monitor
progress and ensure stakeholders are getting all the information they need and this
function, too, will have to be rationalized.

3. When a strategy has been selected and implemented, the steps taken above will mean we
can evaluate progress of the strategy and the effect it is having on stakeholder attitudes to the
concepts addressed by the Golden Rules- particularly usefully, ethics and the goal.
As Figure 2[see appendix] shows we will need
16 to monitor all four elements- including the
organization an the reporting systems themselves- to ensure continuing high standards and
that we are receiving accurate, timely information to feed back into the model.

CONCLUDING NOTES
In conclusion it can be said that CSR play a vital role in the development of South Asian
countries. Nor will Asian countries move towards as single “Asian” model of governance,
given the diversity that existing current governance system, the variations in regulatory
philosophy, and differing political systems. The convergence of the policy level in Asian
countries towards the Anglo-American CG model cannot but have a profound impact on
Asian business.
17
Appendix

18
Corporate social responsibility- Structure – does it protect the interests
Does the company behave responsibly of the various stakeholders and have
towards all its stakeholders? open channels of communication all
of them?

The stakeholder approach is part of the whole

strategy process, taking all stakeholders into
account. Organisa
Ethics -tion

Strategy process

Goal Using: Reporting

-internal
analysis
-external
analysis
-stakeholder
analysis

Congruence of goals- Information – is there

Does the company’s goal reflect the information being passed
Expectations of all the stakeholders? through this channels which is
Sufficient and accurate
Enough to satisfy all the
Stakeholders?

Figure 2: The shareholder approach and the strategy process

19
 20 by Coke at Tirupati, India.
Case study 1 : Green drive

TIRUPATI, NOV 02,2004, Coca-Cola, the aerated drinks major, has embarked on a
major project to make Tirupati a greener and better place to live in. As part of the Andhra
Pradesh State Formation Day celebrations, it has launched an afforestation program at
Annamayya road in the temple town. One hundred employees of Coca-Cola India's Sri
Kalahasti bottling plant took part in the tree plantation drive, taken up in association with
the State Forest Department, the Municipal Social Forestry wing and a private school, Sri
Chaitanya Children's Academy. The Tirupati MLA, M. Venkataramana, inaugurated the
event and planted a sapling. ``We at Coca-Cola have always integrated our business
operations with environment-friendly practices, policies and this (tree plantation drive) is
yet another step to help improve the local environment," a company spokesperson said.
Three hundred saplings of Neem and Amla were planted.

[Source: India's National Newspaper

Tuesday, Nov 02, 2004]
 21
Case study 2 : CSR in INDIA


The need for companies to develop a social responsibility. "Every company has
a special continuing responsibility towards the people of the areas in which it is
located. The company should spare its engineers, doctors, managers to advise
the people of the villages and supervise new developments by co-operative
efforts between them and the company," said J.R.D. Tata. "The service of India
means the service of the millions who suffer. It means the ending of poverty and
ignorance and disease and equality of opportunity," said Jawaharlal Nehru.
This is substantiated by case studies of what companies are already doing
towards being socially responsible.

[Source:The Business of Social Responsibility: The Why, What and How of Corporate
Social Responsibility in India; 2000 by Harsh Srivastava and Shankar Venkateswaran,
Books for Change, India]

Among 600 companies in India who are doing as responsible corporate citizens
-85% agreed that companies need to be socially responsible.
-Only 11% of the companies had a written policy.
-Over 60% of the companies were making monetary donations. Health,
Education and Infrastructure were the most supported issues.

[Source: Report on Survey on Corporate Involvement in Social Development in India

by Partners in Change, July 2000; Partners in Change, India.]
Case study 3: Unocal reaches out to children in Moulvibazar in Bangladesh.

The school administration of Gopendraganj Primary School of Bhunobir union Moulvibazar

gave a warm reception to Unocal to show their appreciation for providing their students with
uniforms recently, says a Press release. From Unocal Andrew L. Fawthrop, President and
Managing Director, Unocal Bangladesh, Gregory Huger, Director Corporate Responsibility,
Unocal Foundation, Timothy McLaughin, Naser Ahmed, Nurul Huda, Ashraf Choudhury were
present. Unocal has distributed a total of 3301 uniforms in 12 primary schools in the
Moulvibazar District. The schools are along the pipeline route of Unocal's Moulvibazar Natural
Gas Project. Natural gas will be processed at Kalapur union and transported through this
pipeline to Petrobangla's North South Pipeline at Musai near Rashidpur.

Unocal's Moulvibazar Plant site is located at Kalapur Union of Srimangal Thana in the
Moulvibazar District. Commercial production is expected to begin from the Moulvibazar Field
by the first quarter of 2005. An agreement with Petrobangla has been signed recently in this
regard. Development of this field will help meet Bangladesh's immediate needs for natural gas
supplies.

[Source: “News From Bangladesh”-Daily News Monitoring Service, October 15,2004.]

22
 Case study 4: Levis gives away $285,000 for women & youth in India.

The Levi Strauss Foundation and Levi Strauss & Co. have awarded US$285,000 to three
organisations in India to help women and youth through economic development, education
and HIV/AIDS prevention programs.
A grant of US$150,000 goes to Parikrma over two years to target “the poorest of the poor”
children and their families living in the urban slums of Bangalore. It will provide 230
students with high quality, values-based education; nutrition in the form of a well-balanced
diet and supplements; and healthcare through immunisations and regular check-ups at the
Parikrma Centre for Learning at Sahakaranagar. In partnership with other local non-
governmental organizations, it will also offer integrated community development programs
such as HIV/AIDS awareness and prevention, vocational training for older siblings of the
students; detoxification to address alcoholism among fathers of children; and micro-
financing and loans to families for asset-building.
The second organization, SANGRAM, will receive $100,000 over two years for a
campaign to combat stigma and discrimination and the spread of HIV/AIDS among rural
women in 713 villages in Sangli, Maharashtra, through village-level community
interventions.

DISC will receive $35,000 to educate 6,000 female garment workers in Bangalore and the
management of these factories about basic labour laws and employment rights covering
minimum wages, overtime payment, leave entitlement and other statutory benefits; working
conditions; and reproductive health and HIV/AIDS. It will also educate employees about
their role as responsible workers and factory management about their responsibilities as
employees. It will hold in-factory training for all levels of employees, facilitate the
establishment of regular employer-employee dialogue, staff welfare committees, and
remediation committees for grievance handling.

LSF and LS&CO. have a strict non-discrimination policy that will not support
organizations which discriminate against a person or group on the basis of age, political
affiliation, race, national origin, ethnicity, gender, disability, sexual orientation or religious
belief. LSF and LS&CO. focus on alleviating poverty for youth (aged 7-25) and women
through three inter-related areas:

Preventing the spread of HIV/AIDS through education and

 Awareness related programs, especially where social bias towards HIV/AIDS remains
strong Increasing economic development opportunities by supporting
 Workforce development, micro-enterprise programs and asset-building initiatives, and
 Ensuring access to an education where none is provided or access is limited.

23
Case study 5: Bangalore IT companies are making long-term financial commitments
under their CSR programs.

Aditi Technologies has committed a minimum of Rs 40,000 per month to fund its CSR
activities. “The actual investment is much more,” says its vice-president, Ajay Bij. “The
employees pool in whatever they can and the company contributes the same amount to
make it double.” The company’s CSR wing is christened Aanchal and 80% of employees,
along with founder and CEO Pradeep Singh and visiting board members from the US,
support education for the underprivileged children through the wing.

Aanchal volunteers interact with children on a regular basis and also fund the rehabilitation
equipment needed by the school. Aditi also provides special classes for the 9th and 10th
standard students in the girls school to prepare them for the board exams. Aditi also makes a
commitment to support the higher education of those who score well, while employees try
to inspire the students through interactions. “We also bring some girls to the office
occasionally and show them how the real world works. Somewhere this helps us to inspire
them to do well.”

Wipro Technologies’ CSR is focused towards improving the Indian education system
because the company believes that the current system of education in India needs
rejuvenation. Another employee supported initiative is Wipro Care, meant for education of
underprivileged students. “Our volunteers are also working with slum inhabitants in
Hyderabad to start a tie-and-dye unit on their own. We continue to work on various projects
in other Wipro locations such as Chennai, Pune and New Delhi also,” Mr Gupta says.

Another company Honeywell Technology Solutions Lab (HTSL) has formed a community
service team which manages the company’s CSR. “Through the community service team,
we imbibe the values and the spirit of giving, from our parent Honeywell. This coupled with
the Indian value of living together as one has formed the essence of our CSR initiative,”
says managing director Krishna Mikkileni.

HTSL helps underprivileged individuals to become self reliant and independent with its
‘start a life program’. It sponsors autorickshaws, photocopying machines and the like for
individuals to help them make out a living from it.

[Source: Reema Jose (2004), Indian Express Newspaper, Bombay, November 28.]

24
 Case study 6 : CSR in Bangladesh – some evidence.**

Many companies, especially local businesses and MNCs operating in Bangladesh, are placing
greater emphasis on the role that they can play as “responsible corporate citizens.” They are
adopting a social, ethical and environmentally responsible approach in their business activity.
For instance, since the Magurchara debacle, the MNCs in the energy sector have become
even more conscious of this role. By recognizing their wider responsibilities, the prospector
companies now accept that they are accountable to a wide range of stakeholders outside the
shareholders, including business partners, employees, customers, suppliers and community
groups. Few examples of CSR investments in Bangladesh are as follows:

1. British American Tobacco Bangladesh (BATB): As tobacco products pose risks to

health, BATB is aware of the significance of CSR. BATB is the pioneer corporate house in
Bangladesh to initiate Social Reporting process in April 2002 through formal dialogue with
its external stakeholders to understand their views and concerns on issues involving the
tobacco industry in general, and the Company in particular. It is the first company in
Bangladesh to prepare a Social Report in September 2003, that complies with their rigorous
global benchmarks of the AA 1000 standards and the United Nations Foundations sponsored
Global Reporting Initiative (GRI) guidelines. They have opted to work with both, and more
importantly, have sought an independent verification on the integrity of their Social
Reporting process from Bureau Veritas Quality International (BVQI). BATB has also
established a formal CSR committee within the company. Eight facilitated dialogue sessions
were held in two stages in three places, including Dhaka, the national capital. Issues raised by
the stakeholders were grouped into ten main categories: (i) consumer information, (ii) public
smoking, (iii) lower risk products, (iv) Youth Smoking Prevention, (v) responsible marketing,
(vi) Tobacco Regulation, (vii) tobacco taxation and cigarette pricing, (viii) environmental
management, (ix) corporate citizenship, and (x) corporate governance.

During the Dialogue sessions the stakeholders expressed that they were aware of the
contributions being made by BATB to the government in excise revenue. Their suggestion
was for diversification of business and to create more job opportunities.

GlaxoSmithKline (GSK): GSK is one of the world’s leading pharmaceutical companies. Its
global quest is to improve the quality of human life by enabling people to do more, feel better

25
and live longer. In Bangladesh GSK is continuing its support to a hospital ward and play-
corner for children afflicted with leukemia in Chittagong Medical College Hospital. The
project is managed by Children Leukemia Assistance & Support Services (CLASS). The also
has awareness program for common people about Hepatitis B and other preventable diseases
in association with different social welfare organizations such as Sandhani, Rotary, Lions,
and Badhon.

Lafarge Surma Cement Ltd: In Bangladesh Lafarge Cement expects to complete the
construction and erection of its cement plant by 2005. A massive landfill and site
development work have already been completed on the 90 acre plant site. At the same time,
Lafarge is implementing a comprehensive action plan to support the people and local
communities, who were impacted by this project. Under a Resettlement Action Plan of the
company, the affected people received better than normal financial deals. The families are
resettled in a new village, in new houses with basic amenities. The villagers are owners of the
houses and a piece of land. There is a Community Development Centre which provides
medical care, training programs on income generating activities such as cattle breeding,
weaving and basic education to the villagers especially, women and children.

Nestle’: As Nestle has grown from humble beginnings into a corporate giant, it has attempted
to take the fundamental cultural values of environmental preservation and cleanliness to
every country where it operates. In Bangladesh, apart from donating money to various
orphanages, Nestle’ also held a dengue prevention march. This seems to be the perfect way of
creating awareness among the people about dengue prevention measures. People tend to
regard it as more than a dairy marketing company. Nestle’ organized a day-long Nido Fair in
Bogra last year. It may have been launching a commercial campaign, but imparting
nutritional facts about baby-food to the masses is certainly an important social responsibility.

Sheltech (Pvt) Ltd: This leading real estate developer views business not only as a tool for
generating profit, but also to explore new avenues and launch new products. It is committed
to provide better service to its clients. Sheltech is involved with the development of the
country’s games and sports. It particularly supports Badminton and Tennis. Sheltech Award,
introduced in 1978, is the most talked-about one in the country. This is an award for the
leading writers, singers and cultural personalities. In their real estate development projects,
Sheltech takes care of the surrounding environment.
 26
Shell: Shell focuses on delivering products that are safe for the people and the environment.
In Bangladesh, the Shell Bangladesh Exploration and Development B.V. is also dedicated to
the fundamentals of health, safety and environment (HSE) related principles, foremost of
which is to pursue the goal of no-harm to people by way of protecting the environment. Shell
also works with the World Conservation Union (IUCN) to encourage and assist societies to
conserve the integrity and diversity of nature and ensure natural resources that are used in a
fair and ecologically sustainable way. Shell is the first energy company to establish a
biodiversity standard. It commits all Shell companies to respect protected areas, maintain
ecosystems and contribute to conservation. It has shown it can meet this standard in projects
from Gabon in Africa to the Stanlow refinery in the UK.

Unocal Bangladesh: Approximately, 420 people work for Unocal Bangladesh, of which
98% are Bangladeshis. Corporate responsibility is fundamental to Unocal’s core values. In
Bangladesh, Unocal has been active in community service for several years, investing more
than one million dollar in a wide variety of activities and programs primarily focused on
education, healthcare and social welfare in the Greater Sylhet areas where its gas fields are
located. In 2002, Unocal entered into long term alliances with several leading humanitarian
organizations that are dedicated to the principles articulated in Unocal’s vision “to improve
the lives of people wherever we work.” These organizations include Habitat for Humanity,
The Nature Conservancy, The international Youth Fund, and the International Institute for the
Rights of the Child. Through these and other alliances, Unocal expects to improve the
effectiveness of its corporate responsibility undertakings and help empower local
communities in Bangladesh as well as the South East Asian countries of Indonesia, Thailand,
and Myanmar.
Standard Chartered Grindlays Bank: Standard Chartered’s CSR activities are of two
types. One type includes community development in the areas of health, education and youth.
Standard Chartered encourages its employees to take ownership of such projects and get
involved in these activities. In Bangladesh, it has a number of community activities amongst
which is its involvement in Islamia Eye Hospital at a significant level. Through the “sight
savers” scheme, SCB is rendering ophthalmologic services to the lower income group and
poor people to have eye treatment and surgery at highly subsidized rates.
27
Berger Paints: Berger has partnership programs with few NGOs helping to rehabilitate
disabled peoples through different income generating activities.

Grameen Phone: Grameen Phone is trying to promote information technology as integral

part for poverty alleviation agenda. It provides mobile phones to the target population of the
poor, particularly in the rural area at a 50% discount in price.

Singer Bangladesh: Singer Bangladesh is helping young women of low income group to
learn sewing and earn the Singer Diploma, which is helping to manage their own living.
Some of them take up self- employment while others join garment industries.

Reckit Benkizer: They are contributing to healthy living through preventive health care all
around the world. Bangladesh regional office is aware of the concept and this aspect of
corporate behaviour. There is no particular policy make-up given to them.

As we see, MNCs are trendsetters of business-social partnership in Bangladesh. In a country

like Bangladesh where social institutions are still evolving, the corporate entities have to
show more commitment. Except for the few MNCs, the corporate sector in Bangladesh is
lagging far behind in this respect. Businesses can also be of immense assistance in combating
the national problem of youth unemployment, a problem that spirals into poverty, social
alienation, criminal behavior and wasted potential. By encouraging an entrepreneurial culture
among young people, businesses, often in partnership with specialized youth enterprise
organizations, eg. Micro Industries Development and Assistance Services (MIDAS) can give
young people the opportunity to gain life skills, self-esteem and employability.

** This case study is taken from internet edition of HOLIDAY , editorial , Friday
October 31 ,2003 prepared by Parveen Mahmud.

28
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