Corporate Social Responsibility

Dannon’s Corporate Social Responsibility efforts are focused on health. And nutrition, people, and nature. Through the Dannon Institute. The company researches and provides the public with information. About how to maintain a good diet and nutrition to advance public health. They focus on educating children about healthy eating. And providing resources to schools to enable more nutritious school lunches. Dannon supports programs like the Children’s Food. And Beverage Advertising Initiative and was one of few food companies to accept. The challenge of only advertising food meeting appropriate nutrition guidelines to children. Dannon promotes the development of its employees through its employee evaluation system. The “Danone Way,” a work-life wellness program, and its leadership training program. Externally, the company cares for its communities by sponsoring local events.

Donating to local causes, and providing aid in emergencies. It partnered with UNICEF to promote water well construction in Africa through the 1 litre for 10 litres program. It supports children’s programs with its annual “Children’s Day” volunteer efforts in which employees from all Dannon locations volunteer at local children’s charities. Dannon ensures its suppliers operate in accordance with the company’s social principles. And links variable employee compensation to company success in social and environmental efforts. To address environmental concerns, Dannon aims to achieve carbon neutrality. On five of its brands and has met the challenging goals it set for sustainable manufacturing in its “Sensible Plants” initiative. Dannon closely monitors its environmental impact, even conducting Carbon Footprint Analyses. The company has been a part of Dow Jones Sustainability Index as a result.

Dannon should avoid using its CSR initiatives as a part of its product marketing campaigns. Though the CSR programs Dannon conducts are impactful. Effective, and done for the right reasons, beginning to proactively promote. These activities to the public could put them at risk for detrimental changes and undue criticism. While advertising the efforts Dannon makes to do good in the local and global community could increase consumers’ impression of the company and foster goodwill, they could also be accused of having ingenuine efforts, or CSR-washing. Criticisms from the public that the company could doing so much more charitable work with its vast resources may not only have a negative impact on the company’s reputation, but could also pressure it to change its CSR efforts from impactful but less visible programs to ones which are more marketable but do less good for the community.

For example, long term projects like working with school districts in many local communities to enhance student nutrition may give way to more visible but perhaps more superficial activities like being a corporate sponsor of charity events or making donations of its dairy products to food banks in a few large cities. Such pressures to change its CSR would have a negative impact on the organizational commitment these efforts bring to the company’s workforce. These employees are well aware of the genuine CSR Dannon performs even if it is less visible to the public.

To them, it represents an important part of what the company stands for and is a big reason the company can retain dedicated workers. I agree with Tony Cicio, VP of Human Resources, that the most effective way Dannon can use its CSR is to recruit and retain employees. If Dannon begins to make CSR a focus of its marketing efforts, employees may begin to perceive it as ingenuine and feel less attached to Dannon for this reason. For these reasons, I think that there is a high risk that proactively communicating CSR efforts would backfire for Dannon and damage its brand reputation, employee commitment and retention, and reduce the impact its current CSR campaigns make. This triple whammy of likely negatives outweighs the potential goodwill advertising corporate social responsibility could bring.

Dannon’s current CSR efforts have emphasized providing the public with knowledge about healthy diets and access to nutrient-rich foods through the research and education provided by the Dannon Institute, partnerships with school districts to improve the healthiness of cafeteria food, and by proactively changing the nutritional formulas of its products to be more nutritious. I believe a natural next-step in Dannon’s mission to provide the public with ways to eat healthy is by working to end the issue of food deserts in inner cities. Residents of lower-income urbanized areas frequently lack access to healthy food options as the convenience stores serving their areas do not carry healthy items. Supermarket chains that offer healthy alternatives do not want to enter these areas for fear of being unable to turn a profit or being subject to higher theft rates. Therefore, people living in so-called food deserts are forced to turn to unhealthy junk food as their primary source of nourishment.

There are several organizations working to fight the problem of food deserts such as the Food Empowerment Project, WhyHunger, and Civil Eats. The Dannon Institute is continually researching food technologies and healthy eating and could share its knowledge and resources with these organizations in order to identify the nutrients people living in food deserts lack and determine ways to incorporate these into their diets. Dannon could also fight the food desert problem by working with convenience stores in these neighborhoods to begin stocking some of their nutrient-rich products or working with the aforementioned non-profits to distribute them in those areas. I think this is a fitting goal as it aligns with Dannon’s goals of getting healthy food into the public’s hands. Dannon does a great job already of educating and providing children with access to healthy foods. Extending this access to another group in need, those living in food deserts, is a fitting continuation of the company’s CSR.

Construction operates in a domestic environment against ever increasing competition in a saturated market, trying to maintain market share during economic downturn. In contrast Sandford has a strong international presence in the hotel/leisure industry and is looking at diversification to improve their competitive advantage and compliment their current offerings. The opportunity presented by this Joint Venture (JV) will assist both Sandford and Fremantle in entering a new market. It will be challenging mainly because of the fact that both firms are from different industries and may have different goals/objectives along with differing management styles.

Furthermore, the JV’s first project is situated in the Democratic Republic of Timor Leste (DRTL), which will have its own complexities to contend with, be it government/business policies or technology/skills shortages etc. The JV will have to consider a decision making processes throughout the partnership, which could be difficult, with each firm’s needs possibly being different. For a successful JV, the partners need to be honest, trustworthy, committed and focus on what will be best for the JV rather than on their own needs.

Beamish (2008) quoted that firms enter JVs in order to create new products/services and enter new/foreign markets. This is the key benefit to this JV, whilst there are many risk factors to consider, the rewards will possibly outweigh this but only if all the obstacles and opportunities are correctly assessed and an appropriate strategy is agreed and implemented. This report was commissioned by Mr Benny Garstead. The objective was to recommend an appropriate ‘Diversification Strategy’ and identify ‘Opportunities and Obstacles’ that will be encountered by the ‘Sandford & Freemantle’ JV in the DRTL.

Diversification via JV What form of JV Prior to engaging in a ‘Diversification’ strategy both firms will have to agree on the type of JV to be implemented for this project, integrated where profit/loss is shared against an agreed percentage, or non-integrated where profit/loss is not shared. The benefit of an integrated system is that it requires capital investment from all partners and this signifies commitment and can enhance the chances of success.

These decisions along with objectives and how to manage the JV will have to be agreed prior to engaging the JV. Pearce (1997) indicated that JVs can become very demanding if the partners have differing objectives. The reasons behind the JV are simple, both parties contribute to the overall scale/skills pool, thus being in a position to penetrate new markets. However local knowledge in respect of the newly formed DRTL will be lacking. This gap will need to be filled, possibly with local partners/advisors if the JV is to be successful.

Diversification Theory

Ansoff’s (1965) idea of diversification (see matrix below) highlights that this is when firms enter new markets with new products. The new product here is the combined offering of both firms, in a completely new market. Berry (1975) alternatively states that ‘Diversification’ is an increase in the number of industries a firm is active in. There are numerous other definitions, but in essence it is based on desire for growth, by expanding a firm’s existing offering with other products/services etc. which can be directly or indirectly related to current offerings or be completely unrelated. The notion that this JV needs to be identified separately from both firm’s existing operations, by diversifying, could improve competitive advantage by providing focus in a niche market, where one service compliments/leads on to the other and thus being able to provide a tailored/total solution to the DRTL, where many international/domestic firms will be vying for the same business.

Why Diversify

By integrating into related markets (related diversification, infrastructure hotels/leisure = revenue from building & tourism), Freemantle can enter into another market, which could boost their current position and secure cash flow to survive the current downturn. Rather than downsizing, they could potentially increase their turnover, albeit growth not necessarily means more profit. Sandford will also greatly benefit by being able to complement Freemantle’s offering by following on with the required tourism facilities. This type of synergy is called ‘Horizontal Diversification’.

A diversification strategy is simply a ‘growth’ strategy and in this instance could be seen as ‘differentiation’. Porter (1985) states in his ‘Generic Strategies’, firms looking for competitive advantage through ‘differentiation’ must consider the additional costs incurred in re-branding, promoting etc. and the chances of recovering these, also the method is not unique and could be replicated by other competing firms. On a positive note Rumelt (1982) developed, from earlier studies of Chandler (1962) and Wrigley (1970), categories for various diversification strategies nd from this, related diversification on average outperformed other diversification strategies. Furthermore, it was found that these firms had a natural advantage by expanding their skills into related areas. In general drivers for Sandford & Fremantle’s choice to diversify would be based on. Sandford’s desire for growth Freemantle’s need to escape a stagnant market Both need to acquire the skills in the construction/tourism sector Both desire to spread risk Both desire to access a virgin market

Advantages & Disadvantage

The principle advantages for this JV are:  An increase in value/wealth to the firms, which would not be possible on their own. Economies of scale would be increased, assisting entry into the new market. Construction costs for Sandford would decrease. Economies of scope can be exploited by Freemantle delivering the required infrastructure and then the related tourism/leisure facilities. Provides movement away from declining activities for Freemantle. Spreading risk from interests in one area, as well as the risks involved in international JVs (IJVs). The Principle disadvantages could be: Slowing growth in its core business, if focus is shifted. Potentially would add to management costs by implementing a separate team to run the JV. Loss could be incurred during market consolidation process resulting in some parts of the business being subsidized by other profitable parts. Diversification across national boundaries could result in the firms having to deal with varying political/legal requirements of the different countries in which the JV firms have controlling interests.

May result in failure when there is a mismatch between core competencies/experiences. Freemantle’s lack of international experience and Sandford’s lack of local knowledge/influence.

Obstacles and Opportunities

The DRTL is a diverse country ecologically and culturally due to its multitude of linguistic and ethnic inhabitants, built up over its history from settlements to colonisation. The DRTL have to deal with many critical issues from the lack of infrastructure, as virtually everything will have to be rebuilt from ruins left from the war.

Despite the lack of facilities and the major task ahead, according to Moghe (2001) the success of the country lies with proper infrastructure, security, efficient policy and the ability to make clients and investors feel that they are on ‘neutral territory’. One point to note is that there will be mass influx that will occur from foreign firms looking to capture some market share during construction, along with the firms that will remain and operate businesses (i. e. hotel/leisure and tourist facilities).

Aditjondro (2001) criticised this, as it would force the DRTL into a new form of colonisation, an economic one, thus resulting what could be viewed as simply an outpost for globalisation.

Globalisation

Society today is very global and thus making our domestic markets more competitive. This encourages firms to venture across international boundaries in order to offset seasonal fluctuations (i. e. construction during winter periods) through increased opportunities and ultimately be spreading their risk across various options.

The choice to go global has many risks and potential obstacles to consider from cultural/language barriers to economic, legal and political risk. Cartwright and Cooper (1996) underline that compatibility issues may arise from IJVs due to differences in national culture, managerial styles. The proposed JV provides a gateway for international expansion, which maybe a comfortable area for Sandford but Freemantle need to fully assess their capability/competence in a foreign market by fully assessing the risks.

Risk Bettis & Hall (1982) successfully demonstrated the link between risk and reward performance and diversification strategies. In their study they calculated return on assets to measure risk and reward performance. The result found a negative risk Page 4 of 8 AR50126 Assignment Name: Mizanur Rahman against return for related firms, which suggested the opportunity to simultaneously reduce risk and increase return. However, a detailed risk/reward analysis needs to be conducted to ensure that the JV is not affected by any change.

Areas for consideration (UK & USA ‘v’ DRTL): Culture: Currency: Economy: Government: Legal: Labour: Language: Marketing: Transport: Technology: Homogeneous ‘v’ Heterogeneous Uniform ‘v’ Uniform (? /$) Relatively Stable ‘v’ Variable & unpredictable Stable ‘v’ Maybe Unstable Free movement of goods ‘v’ possible legal restrictions Skilled workers available ‘v’ Impossible to source Generally Single Language ‘v’ Different Languages/dialects Many media streams with little restriction ‘v’ Fewer media Several competitive options ‘v’ inadequate Latest ‘v’ Outdated

An appropriate level of competency/ability and motivation is required amongst the staff, for a firm to operate effectively on the international scene. The varying strengths and weakness of both firm’s skill base would need to be fully analysed, in order to compile a competent/capable team. Thus providing a balance of all necessary attributes and improving the chances of success. 4. 4 Corporate Social Responsibility (CSR) DRTL is one of the poorest countries in the world. The country will still be very fragile and under the watch of the UN.

Also the population may not trust outsiders as they have repeatedly been under forced control, so gaining trust for a successful JV will be imperative and thus a robust CSR policy needs to be agreed and implemented. If the CSR policy is not followed, the firm’s image be ruined, causing failure abroad and potentially back home. The JV cannot claim to be an ethical setup if it ignores unethical practices linked to its operations e. g. : Use of child labour and forced labour Production that effects the livelihoods of indigenous people Violation of the basic rights of workers Ignoring health, safety and environmental standards

An ethical business has to be concerned with the behaviour of all businesses that operate in the supply chain – i. e.  Partners Advisors Suppliers Sub-contractors The sticking point is if any of the above is required to be ignored, either to progress the project or to make profit. The decision needs to remain ethical to maintain long term success.

Conclusion

The capability/capacity of the existing construction industry in DRTL, like many developing nations, will be in its infancy (World Bank, 1984; Kirmani, 1988; Wells 1986). For success local knowledge will be a necessity. Although there are several strategies available for IJVs, diversification strategies provide firms with high growth potential in international markets (Capar and Kotabe, 2003). Diversification may be a fast track growth solution but if an appropriate strategy is not applied and the management fail to understand the JV, then serious financial impact is inevitable not only to the JV but also the parent firms. Available competencies and capability need to be assessed; also the product that is being provided needs to have resonance with the new market. Hence extensive research rather than internet based research needs to be conducted at ground zero. Are the firms ready for an IJV, or are there skills gaps that need filling

Recommendations

The recommendations are, but not limited to:  Conduct a thorough PESTEL analysis on the DRTL situation.  Conduct a SWOT analysis of the JV in DRTL. Agree on the percentage level of profit/loss sharing for an integrated JV. Agree the JVs Objectives, Decision Making Protocols.  Review competencies and capabilities of senior management and assemble the correct team. . Implement a CSR policy.  Network with DRTL decision makers and appoint a local partner or advisor. Engage with the community. Once the above has been achieved then the JV can start prospecting for work.

Bibliography

1. Aditjondro, G. J. (2001). East Timorese becoming guests in their own land [online]. Indonesia: Jakarta Post. Available from: http://members. canb. auug. org. au/~wildwood/febguests. htm [Accessed 27 September 2011].
2. Ansoff, H. I. (1965). Corporate Strategy:An Anylytical approach to business policy for growth & expansion. New York: McGraw-Hill. Beamish, P. W. (2008). Joint venturing. Charlotte, NC: Information Age Publishing.
3. Berry, C. H. (1975). Corporate Growth and Diversification. Princeton, NJ: Princeton University Press. Bettis, R. A. ,
4. Hall W. K. (1982). Diversification Strategy, accounting determined risk, and accounting determined return, Academy of Management Journal, 25, pp. 254-264. Carpar, N. , Kotabe, M. (2003).

Introduction

Due to past and current rumours regarding spur, the participation of Spur being a part of a CSR programme will help the businesses ROI. By looking at uplifting the community it should allow for consumers to feel they should contribute to this effort. This should in the end increase Spurs return on investment. Spur being involved with a CSR initiative should allow for the employee buy in of the business.

This should ultimately create a positive atmosphere as well as a positive work environment for all employees. This in the end allowing for consumers to feel more welcomed when intending on buying from Spur.Secondary Research30 000 children have so far been reached by the CSI (Corporate Social Investment) program sponsored by Spur:

The Spur Soccer Masidlale Programme (what it does):

• Essential Life skills are taught to the children.

• Disadvantaged areas are the focal point for this programme and to so this initiative will help uplift these areas.

• Children in Johannesburg, Cape Town, Durban and Port Elizabeth are supported by this initiative.

• Sport is used as their CSR programme which enables them to uplift the community.200 players of mixed boys and girls take part from 10 local schools and each child receives a Spur branded soccer kit which they can keep afterwards.

• The reason Spur has used sport as their initiative, is that it is seen as a “metaphor for life”. A life skills programme is run alongside the soccer initiative and this teaches the children skills needed for life.

The children are equipped further than that upon the sports field. This addresses the socio-economic issues of poverty as it is making it more aware to members of the public, encouraging them to participate in their initiative. This also shows that Spur wants to uplift the community and prove that they want to give back to the community using sport and equipping them with the necessary skills for life.

The Spur Foundation’The Spur Foundation was established on International Mandela Day, 18 July 2012, with a donation of R670 000 by the Spur Corporation, resonating with the ’67 minutes’ theme of Mandela Day, and the founding of the Spur family in 1967.

The Foundation aims to uplift and improve the lives of South African families, especially children, in line with its core value of generosity and Ubuntu’ The foundations motto is ‘Nourish, Nurture, Now!’ This is used to support disadvantaged communities by providing them with education and help fed them. It also provides the basic necessities and amenities for all the children.

“Fill a tummy, feed a mind”.The Full Tummy Fund initiative was launched by the same foundation in 2016 and is used in order to help aid children’s development during their first 2000 days, focusing primarily on their education and nutrition.As stated from the previous socio-economic issue, Spur wants to carry on reaching out to the poverty stricken areas that are in dire need of assistance and help by assisting with the nourishment of their children and to educate their youngsters.

With the Spur Foundation initiative in place, this will help these disadvantaged areas by providing the children with the proper nutrition that is needed and provides education to them, therefore allowing them to uplift their community and be innovative. This ultimately will improve Spurs image and make customers feel more obliged to support them as they will want to be a part of the foundation to help those in need.

These initiatives are relevant to my topic as they provide external information that will be beneficial to my hypothesis and will prove that by Spur conducting CSR it will have a positive impact upon their ROI.By Spur conducting CSR it does good as it will:’Doing good can also be great for business; a growing body of research indicates that a socially responsible company can expect an increase in sales, profitability and value.

Having a well-defined and active CSR initiative can help a company achieve the following:

• Attract and retain qualified personnel

• Enhance employee engagement

• Increase customer loyalty, sales and profitability

• Bolster community goodwill

• Safeguard corporate reputation’

• Bring customers back to the business, especially after recent incidents.

As stated above, by Spur being involved in multiple CSR initiatives it will create a good name for the business and create customer loyalty as consumers will want to have shown that they are interested in what Spur wants to achieve. This will not be seen immediately but word of mouth will develop and over time Spur will experience more support from members of the public.

As more customers are willing to help Spur uplift the community more capital is generated thus allowing for Spurs return on investment to break even and go further allowing for their initiatives to reach further than that of what they have now and perhaps come up with new initiatives.

Similar reasons as to why businesses such as Spur should be involved with a CSR programme:

1. You will have satisfied employees:

-this meaning that the businesses employees will be proud of the organization they are working for thus bringing a good name for the business internally which then gets spoken about externally creating a positive image towards the business in this case Spur.

2. By conducting CSR you will create satisfied customers:

-from past records it has shown that by a business conducting CSR it will improve the customer’s attitude towards the business. If this is gained, the customer will undoubtingly come back to the business and buy the businesses products or services and on top of it, the customer will be less willing to go to another brand.

3. There will be a positive Public Relation:

-CSR will provide an opportunity to share positive stories. This will benefit companies as it is a free form of advertisement. Businesses will not have to fret about having to pay for advertisements. Free publicity is thus generated and is spread by word of mouth.

4. There will be a reduction in costs:

-a CSR programme doesn’t have to cost money, if it is being conducted properly.

Steps for a company to reduce costs are as follows:

• Have a more efficient staff hire and retention system.

• The implementation of energy saving programs.

• The management of potential risks and liabilities more effectively.

• As said by investing more into the traditional marketing way of word of mouth.

5. Business opportunities are created:

-as we know a CSR program is to be pen and allow for an outside orientated approach.

The business must have constant communication between all its stakeholders (customers, suppliers and other important parties).the reason for this communication is that you will then be the first to know of opportunities that your business can be a part of.

6. There is a long term future for the business:

-this means that as a business you are looking at the long term results of the CSR programme and also the businesses continuity. Many large corporations generally refer to this as the shaping of a more sustainable society.

These few extra reasons further support the fact that CSR will create a positive brand image for Spur and allow for a greater desire for them to want to carry on as it will certainly provide them with free marketing strategies thus allowing for more profit that can possibly be used to further invest in their CSR initiatives.

Primary ResearchBar graph representing all answers that were answered either agreeing with questions asked or disagreeing.As seen in the above graph, many of the candidates that volunteered to answer the questionnaire have all agreed with many of the questions.

In the questions it is noticed:

Question 1:

-Most volunteers agreed that by Spur conducting a CSR program it will be beneficial for the business as it will most definitely create a good name for the business.-Volunteers did disagree however saying that the market will not increase as of experiences from the past involving Spur and that has now spread rumours.-In Secondary research, we see that a business will create a good name for themselves by being involved in a CSR initiative. They believe that spread of mouth about Spur will help increase their market share.

Question 2:

-Seen again, all volunteers agree that branding has a huge impact upon the business as they could possibly lose customer loyalty, their brand will not be recognised or trust amongst the consumers towards the business is lost.-Customer loyalty is massive when it comes to a business functioning correctly. If the business has no customers there are no funds to allow the business carrying on with the path that they are on.

Question 3:

-All volunteers have reacted in saying yes that a CSR program will address a current socio-economic factor and it will resolve that matter.-We all know that by a business addressing a current socio-economic factor; it will help in the long term as it will benefit those factors and improve them.

-Many volunteers have replied in the same way saying that by businesses conducting CSR they will uplift the communities and therefore improve the standards of living of all people invested in their initiatives.

Question 4:

-All volunteers have approved in saying that they would most definitely be proud of their business if the business were to conduct CSR.-We know that if the employees of our company are happy with the business and are proud of it they will be more motivated to work and staff morale will increase thus bringing in more profits towards the business as more work is then done.

-Most have responded in saying that they want to be a part of something that they know will uplift and benefit the community. They will be proud that the business is willing to take time out to benefit the community and uplift our standards of living.

Question 5:

-Most volunteers agree that most businesses conduct CSR because it is a free marketing system for their brand to be noticed by external stakeholders. People will be drawn to the fact that the business (Spur) is conducting CSR and will then therefore want to help the business achieve their goals by buying from them and supporting them.

– Few volunteers disagreed saying in the long run this CSR initiative is more expensive than advertising. Some believe that it should involve passion and emotion.

-We learned that in the Secondary research that CSR is a free form of advertising for the business and we all know that advertising fees are expensive so businesses us CSR initiatives to their advantage.

Question 6:

-All agreed in saying that Spurs CSR initiatives will improve the standards of living if they carry on.

-Some have mentioned that perhaps more effort is needed in order to make more of an impact. They may believe this as there is many people suffering in disadvantaged areas and perhaps Spurs initiatives need to be expanded in order to care for even more people.

Question 7:

-All have agreed that it would be more beneficial if they were to know that Spur conducted a CSR program thus making them want to help in the initiative.

-Communication is key in a business as if there is no communication members will not know what beneficial work they are involved in.

Question 8:

-Few have answered in saying that Spurs initiatives will have an impact upon society but most lean to saying no as they would need to increase their efforts to make a really large effect.

– Volunteers who agreed said that every bit counts, this will not ultimately uplift the community but as said every little bit does count when uplifting the community.

-For majority to have said no, it could possibly also mean that there is no communication from the business to the external market in saying that they do conduct CSR initiatives and to so many are unaware as to what spur des and are not willing to wanting to support.

Question 9:

-Most volunteers have agreed that businesses should conduct CSR to benefit the community. Yes it is a free way to market the business but the community is the main focus and this is what the whole point of a CSR initiative stands for.Three volunteers have replied saying no and the reason is that a CSR program is expensive and it could possibly disadvantage the business.

-The main focal point of CSR is to benefit the community and the planet as well as making a profit, so in a sense the business is saving money by conducting CSR as they do not have to pay for advertisements. This money however can be used to further more improve their CSR initiatives or perhaps invest into new initiatives.

Question 10:

-Majority of the volunteer answers agreed saying that the “Fill a tummy, Feed a mind” initiative should only focus on children. They agree in saying that children are most in need as they have no control over their current situation thus need the support that Spur id offering them. Although they did add ideas in saying that Spur should extend the time period of this project for the children as they say that 2000 days is not enough for the children as it is only five years.

-Volunteers did disagree with the initiative and say that they should not only focus primarily on children. Many people are in dire need of education, life skills and food as our economy is so poor so therefore they should have access to it as well. Volunteers added as well that it is also quit taxing on the business as 2000 days is quite a long time to look after a child, not just one but many.

-For a business it can be quite taxing to their profits especially when they are providing for more than 20 000 children. Although it can be quite taxing perhaps in some cases Spur can be flexible in allowing to extend the 2000 days’ time period especially if they are in dire need and have no assistance.

This Primary Research has furthermore proven that the CSR initiatives undertaken by Spur are beneficial to the business as a whole. It will help benefit the business from marketing strategies through to eradicating bad stigma about past incidents which have brought the Spur franchise name down.

This will help the business be recognised and allow for more consumers to feel more encouraged to support Spur.

Conclusions

The Primary research as well as the Secondary research helps prove that Spurs involvement with its CSR initiatives does have an impact upon their business which ultimately will improve their ROI.

We see in the primary research that many of the volunteers feel that if the business is willing to give back to the community and are willing to help, consumers will feel more encouraged to help support the businesses and help uplift their community as well as looking at the possible opportunity to uplift the nation as a whole (in the long term).

In order for Spur to possibly improve their CSR they can look at:

• The practice of transparency towards its consumers and their employees. Make it part of their organisational structure. Inform the larger community about all ventures of the business. This will help consumers understand everything that is being conducted within Spur.

• Encourage innovation within the business as well as the community. This will allow for new ideas for the business and new ideas for the business to get itself involved with.

In the context of ‘stakeholder theory’, it can be argued that large profits and concomitant bonuses as a reward for productivity are by no means a negative thing. As stakeholders in societies where successful business operate, all stands to gain provided business are willing to play the role of benefactor within the states that support them.

• From a utilitarian perspective, would you argue for or against the proposed tightening of UK banking regulation?

According to utilitarianism, an action is morally right if it results in the greatest amount of good for the greatest amount of people affected by the action (Crane and Matten, 2007: 94). From a Utilitarian perspective, it seemed morally right until the financial crisis since it produced the greatest happiness of the greatest number. This included, for example, bank managers enjoying their bonuses and house owners being able to access mortgages for their homes.

However, after the financial crisis, it became clear that it was the greatest pain of the greatest number. For instance, banks were then bundling loans with ‘toxic assets’ which consisted of loans unlikely to be repaid. From a utilitarian perspective, the banking regulation caused more pleasure than pain in the short run, but since then it formed greater pain and less happiness in the long run as a result of the financial crisis. Therefore, the main principle of utilitarianism in the short run triggered the financial crisis in the long run.

According to the principle of the ‘greatest happiness of the greatest number’, it is clear that the result of the financial crisis was not morally right because of the destructive structure and economic suffering that it formed.

• Using arguments on the ‘maxims’ of duty, would you consider the UK banks to have acted ethically in their operations?

Kant subsequently developed a theoretical framework through which these principles could be derived, called the categorical imperative (Crane and Matten, 2007: 97).

The categorical imperative consists of three parts, which Kant puts forward as follows:

Maxim 1: Act only according to that maxim by which you can at the same time will that it should become a universal law (Crane and Matten, 2007: 98). The lending of loans and mortgages are morally right only if its maxim is universal. However, this maxim cannot be universalized because the financial system of the banks will collapse depending on the inaccurate information (toxic assets) that was passed on to borrowers. Therefore, this maxim cannot be universalized.

Maxim 2: Act so that you treat humanity, whether in your own person or in that of another, always as an end and never as a means only (Crane and Matten, 2007: 98). Lending of mortgages is morally right if and only if, in performing it, the lender refrains from treating any person as a means. In other words, every individual should be treated as an end in himself or herself. However, in the case study, the bank managers continued to maximise their lending for the sake of bonuses and so in turn, this made house owners suffer as prices rose and they are faced with negative equity. This meant that house owners became an end themselves while being treated as a merely means.

Maxim 3: Act only so that the will through its maxims could regard itself at the same time so universally lawgiving (Crane and Matten, 2007: 98). In this point, the motive for bank managers is ‘desire’ and so triggers them to exaggerate their lending which causes the increase in value of homes. This means that bank managers would not want their actions to be publicised, and so this act is immoral.

• What clashes of rights are involved in this situation?

Is it possible to judge their relative importance? Whose rights matter most in this situation? Natural rights are certain basic, important, unalienable entitlements that should be respected and protected in every single action (Crane and Matten, 2007: 100).

House owners’ rights matter the most because those who borrowed off banks with mortgages were given false information about the hidden loans that were unlikely to be unpaid, let alone they had poor credit history. This relates to Maxim 2, whereas consumers were only used as a merely means, because bank managers’ focus were bonuses. Therefore, it is not morally right that they were faced with negative equity and inability to sell, and so borrowers may have their assets repossessed because they are unable to pay back mortgages without the bank’s support.

Subsequently, depositors’ rights matter because when the financial crisis happened, banks were not getting a good return on capital, and so the only way they could have financed themselves were to opt the savings that depositors put into the banks. Clearly, this could have been a violation as the case study says ‘depositors may have lost most of their savings’. This is what led to massive deposits of withdrawals and accounts closing down so that those associated with the bank can save their money elsewhere.

Finally, shareholders’ rights are the least important compare to the other stakeholder groups, because they were only affected by share price but not by the loss of their liquid assets that depositors faced. They also have rights because they invest and put trust in the company and so if the company is underperforming or not achieving, shareholders are not getting a good rate of return. Therefore, they have the right to withdraw their shares in the company and invest in another reliable bank.

• Which other approaches to ethical analysis could help evaluate the current situation?

An approach that could be applied to the current situation is postmodern ethics. According to Crane and Matten (2007) post-modern ethics is an approach that locates morality beyond the sphere of rationality in an emotional ‘moral impulse’ towards others. The application of post-modern perspectives would appeal to the ‘moral impulse’ and guilty feeling of the bank managers. The fact that deregulation was established, this allowed them to maximise lending and so this decision caused actual misery and economic destruction to the stakeholders (borrowers, shareholders etc.) involved. Parts of the decision were:

• Holistic approach: the question could be whether bank managers have similar attitudes with regards to suffering in their financial circumstances?

Examples vs. principles: arguing in favour of borrowers and shareholder claims acknowledges important principles of business life in general. In this situation, these principles complicate the moral issue of the economic suffering that is happening in the crisis.

Think local, act global: post-modern perspectives not only look at their decisions seriously but could decide on an issue in one way today and in other way tomorrow (Crane and Matten, 2007: 119). In this case, the governments are decision makers and they have to take one decision after the other as there is no moral principle valid for each and every situation. This relates to the governments bailing out banks in the UK for the sake of the global economy not to be affected.

Preliminary character: post-modern ethicists are often seen as more pessimistic than their modern counterparts (Crane and Matten, 2007: 119). In this example, this would suggest that an ethical decision on deregulation by the government would not mean that financial banks should start selling loans to anyone for the sake of bonuses. Rather one would argue that moral judgements have a preliminary character.

In conclusion, these perspectives suggest that if bank managers of the financial industry would be exposed to the misery they caused on their stakeholders, especially borrowers who believed to have suffered the most, their moral judgement would be different from just the way we see them as not using their borrowers as a means to an end. 1. Select a major financial organisation and critically appraise its current approach to Corporate Social Responsibility. Carroll and Buchholtz (2000:35) state that corporate social responsibility encompasses the economic, legal and ethical and philanthropic expectations placed on organisations by society at a given point in time.

For CSR to be accepted by a conscientious business person, it should be framed in a way that the entire of business responsibilities are embraced. There are four kinds of social responsibilities which form CSR; these include economic, legal, ethical and philanthropic. Also, these four components of CSR are presented as a pyramid and deserve closer consideration (Carroll, 1991). HSBC is headquartered in London, it is one of the largest banking and financial services organisations in the world.

HSBC’s international network comprises around 7,200 offices in over 80 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa (HSBC, 2012). For HSBC, corporate social responsibility means managing their business responsibly and sensitively for long-term success. Their goal is not, and never has been, profit at any cost because they know that tomorrow’s success depends on the trust we build today. They also look to address the expectations of our customers, shareholders, employees and other stakeholders (HSBC, 2012).

Effective company secretarial practice and corporate governance have been challenged further with the development of complex organisational structures during the 20th Century. Group structures have become commonplace, due to the information revolution and globalisation, with some companies holding hundreds of subsidiary companies. “The current position is covered by Section 283 of the Companies Act 1985 which states that “every company shall have a secretary”. ” (ICSA, 2002). Identify and evaluate the major current concerns and issues facing the company secretary

Introduction ICSA (2002), describe the role of the company secretary as someone who “usually play a central role in the governance and management of their organisations…… through regulation, legislation and best practice…. ” It is necessary to understand the breath of responsibility a company secretary may encounter (see appendix 3) to evaluate the major current concerns and issues. Whilst the duties of the company secretary are not specified by the Companies Act, contractual duties often exist.

Company directors hold primary legal responsibility for ensuring that the company meets legislative requirements. However, the company secretary may also be liable for failures to meet certain provisions of the Companies Act if it is part of their contractual duties. Corporate Governance Recent high profile cases of company fraud (Enron and BCCI) have pushed corporate governance to the forefront of company management. The company secretary plays a vital role in ensuring effective corporate governance.

Governance Issues and Legislation The regulatory framework for effective corporate governance stems from a wide range of conditions such as legal requirements, statutory provisions, guidelines and codes of practice (Wong, 2000). Appendix 4 lists recommendations from guidelines and code of practice such as the Cadbury Report, the Greenbury Code and the Hampel Committee. These Committees culminated in the production of the Combined Code on Corporate Governance issued by stock exchange in 1998.

This Combined Code included rules on proper board meetings, establishing key committees, appointment of non-executive directors and has been appended to the London Stock Exchange’s Listing Rules. Whilst it is not mandatory for companies to follow these codes of practice and guidance reports, listed companies not following the Combined Code need to provide justification to the Stock Exchange for divergent practices. “Such disclosure requirements exert a significant pressure for compliance” (Monks and Minnow, 2001).

To monitor and ensure compliance with the rules given in the Combined Code companies must also “ensure that they appoint suitably qualified staff, including a company secretary” (Robinson, 2002). It is also important for the company secretary to maintain independence from the board to protect rights of stakeholders. “The challenge for company secretaries is to play a leading part in achieving a balance between their corporate and commercial responsibilities and the interests of all stakeholders… ” (Altman, 2000). Company Law Review (CLR) The CLR, commissioned by the Government in 1998, propitiates smaller, private organisations.

The CLR (which will inform the new Companies Act, expected in 2003) proposes the removal the strict reporting required for all companies through the Companies Act. This Act will focus primarily on the large majority of private companies, and detail the provisions that apply to those companies (Blanks, 2001). Existing legislation focuses mainly on detailing the provision of large companies. The new Company Law and Reporting Commission and the Standards Board, will keep company law and governance under constant review, providing guidance and advice to companies and government.

The Standards Board will be responsible for keeping the Combined Code updated and setting company reporting requirements. The CLR proposes to remove the mandatory obligation for all private companies to have company secretaries, so that it will be the decision of the private company whether or not to appoint a company secretary. ICSA are concerned that this proposal ignores the role that the company secretary undertakes in influencing and monitoring the governance of a company (Blanks, 2000; DTI, 2001).

ICSA recommend that only very small private companies have the option not to appoint a company secretary. Electronic communications Major advances in technology affect the way the company secretary works. The Companies Act 1985 (Electronic communications Order 2000) allows companies to communicate with shareholders electronically. Appendix 5 shows the circumstances where electronic communication can be used. The company secretary must know which statutory declarations can be substituted by electronic submissions. False submissions will incur the same strict penalties for making a false declaration.

By 2005 the Government will require Companies House to be able to accept all documents by electronic form which will mean that all accounts, resolutions and other documents will be submitted electronically. Whilst the introduction of the electronic system will have advantages such as speed of information transfer and elimination of storage requirement, it will be a challenge for all companies (including Companies House) to reach this level of technological advancement. For example, staff will need to have relevant electronic knowledge base and suitably advanced computer equipment.

For larger corporates the CREST system (introduced in 1996) is a technological advancement which allows relevant staff to have more control over international share settlements. Advantages of CREST are the ability to cope with large volumes of transactions, in multiple currencies and allow anyone dealing on the stock exchange to be able to hold shares in electronic form. Data protection/copyright law Following the introduction of the 1998 Data Protection Act, companies need to be aware of the implications of storing ‘confidential’ information in hard copy or in electronic form.

The Act aims to protect the confidentiality of employees and members and is detailed in Appendix 6. Organisations can be liable to prosecution under UK copyright law if they breach the regulations on the law. For example, companies may be liable if they allow their employees to use software, which has not been obtained, from a legitimate source. Corporate Social Responsibility (CSR) Increased CSR regulation enforced by organisations such as governments, the European Commission and lobby groups have raised awareness and recognition in many companies on a global level.

Corporates are recognising the need for investment in CSR to achieve sustainable growth. Many larger organisations are developing CSR strategies (CSR strategy for Astra Zeneca is shown in appendix 7). Affiliated Legislation Financial Services The company secretary should also be aware of changes in affiliated legislation such as the Financial Services and Markets Act (2000). Whilst this is directed primarily at the regulation of financial markets and professionals, there are changes which affect day-to-day business operations, shown in appendix 8.

European Commission (EC) Law The EC is introducing increasing amounts of company legislation, which may prevail over country legislation. The EC is looking into the possibility of harmonising the 43 different corporate governance codes used across Europe. Limited Liability partnerships (LLP) The introduction of the LLP Act 2000 changes the way certain organisations operate. Such organisations benefit through a tax status of a partnership with limited liability for its members and organisational flexibility.

Grafton Group plc is an independent, profit growth oriented company with operations primarily in the UK and also in Ireland. The Group has strong national and regional positions in the merchanting, DIY retailing and mortar markets.

The Group aims to achieve above average returns for shareholders. Grafton’s strategy is to build on strong positions in businesses serving the UK and Irish construction sectors, to develop in related markets, and to grow in businesses with which it is familiar. In Great Britain, Grafton is the fourth largest merchanting business trading from 430 locations comprising 219 Builders Merchanting branches trading principally under the Buildbase and Jackson brands and 211 Plumbers Merchanting branches trading mainly under the Plumbase brand.

EuroMix is the market leader in the UK dry mortar market where it trades from a network of nine manufacturing plants in England and Scotland. In Northern Ireland, MacNaughton Blair is one of the leading builder’s merchants in the province where it trades from 20 locations. In the Republic of Ireland, the Group is the largest builders and plumber’s merchanting business trading nationally from 62 branches under the Chadwicks and Heiton Buckley brands. The Group is the market leader in DIY retailing in the Republic of Ireland, trading nationally from 41 stores and is also engaged in the manufacture of mortar, plastics and windows in the

Republic of Ireland. Today, in Ireland, Grafton is the largest builders and plumbers merchants and the clear market leader in DIY retailing. In the UK the Group’s merchanting operation is the 4th largest in the market. 2005 turnover was €2. 6 billion and Profit after Tax amounted to €166 million. History of the company: Grafton’s origins date back to 1902 and since then the Chadwick family have played a central role in the development of the business. 1909

William Thomas Chadwick establishes his first business called Chadwicks (Dublin) Limited to supply builders merchants and major building contractors with Irish and imported cement and plaster. Today Chadwicks is the 2nd largest builders and plumbers merchanting brand in Ireland, trading from 31 branches nationally. 1930 William Chadwick acquires control of a small firm engaged in the manufacture of concrete blocks and roof tiles, which his company was supplying with cement. In 1931 Concrete Products of Ireland was registered as a private limited company.

Today it is called CPI Limited and is a leading manufacturer of dry mortar in the Irish market. William Chadwick, the Group’s founder, dies at the end of the Second World War, leaving the business to his two sons – Terence and Finton Chadwick. 1965 Concrete Products of Ireland becomes a public company and purchases Chadwicks (Dublin) Limited from the Chadwick family. At the same time Marley Limited increases its holding to 51%. Marley’s relationship with Concrete Products of Ireland dates back to the end of the Second World War when Marley acquired a minority shareholding. 985 Mr. Michael Chadwick is appointed Executive Chairman. 1987 Marley plc decides to concentrate on the manufacture of building materials and as a consequence sold its controlling shareholding in the Group. The Marley shareholding was placed with institutional investors and the Group’s management.

The Group opens its first DIY retailing store in the Irish market. 1988 The Group changes its name to Grafton Group plc and makes its first UK acquisition, a small heating and plumbing business which gives the Group familiarity with the large UK merchanting market. 990 The Group acquires MacNaughton Blair a long-established and well-known Belfast-based builders merchants. Also during the year Grafton acquires Joseph Kelly & Son (1994) Limited in Dublin, a builders merchanting business which was to become very well placed to serve the needs of the building trade in the centre of Dublin. 1994 The Group’s expands significantly in the UK with the acquisition of Bradley’s and Lumley & Hunt plumbing and heating operations. Total sales in Britain and Northern Ireland increase by 53%, representing 21% of Group turnover. 995 Grafton acquires P. P. S. Mortars – a silo mortar plant based in Glasgow. This business adopts the EuroMix silo mortar business model and technology, which has been successfully developed by CPI, the Group’s Irish concrete products business. Today EuroMix is the leading UK mortar manufacturer with eight plants. 1996 The Group continues its strategic development in the UK with its first acquisition of a builder’s merchanting business – R. J. Johnson, based in Oxford.

The Group continues to acquire in the UK adding a further 14 locations through six small but significant acquisitions and achieves critical mass in its UK operations. This is the Group’s tenth year as an independent public company; a decade of considerable achievement in which sales increased 18% annually and earnings per share grew at an annualised rate of 29%. 1998 UK builders’ merchanting operations expand substantially with the acquisition of British Dredging plc, the first time an Irish company acquires a listed UK plc.

This business operates a total of 23 locations incorporating 17 builders’ merchants and six plumber’s merchants. The builder’s merchanting operation is integrated under the Buildbase brand, which was established in 1997 as the trading name for the Group’s UK builder’s merchanting operation. During that year the Group makes another six acquisitions adding a further 19 locations, including the London based Deben Builders Merchants business with 10 branches and A R Hendricks Limited, a heavy side builders merchant trading from five branches.

The Group continues its bolt-on acquisition programme adding a 16 more locations, through eight acquisitions in the UK. Throughout the nineties the Group continues with the expansion of its Irish merchanting and DIY retailing operations and consolidates its position as market leader in both sectors. 2000/2001 During these years, the Group continues apace with its bolt-on acquisition strategy. A total of 24 acquisitions were made during the period, many single branch operations that add value through infilling the Group’s overall network of locations in the UK. 002 This is a record year with a total of 15 acquisitions adding a further 39 branches to the UK merchanting network. These acquisitions included five small chains: Lakes in Derby, BMB in Barnsley, and PDM in Edinburgh, Aizlewoods in Rotherham and JKS Heating and Plumbing Supplies in Manchester. 2003 The Group undertakes its largest ever acquisition thus far – Jackson Building Centres in England adding 18 branches – and makes another significant acquisition with Plumbline, Scotland’s largest independent plumbers merchants with 17 locations.

Overall it was a busy year with a further seven bolt-on acquisitions completed, giving a total of nine acquisitions for 2003. Grafton now has 137 plumbers’ merchanting branches trading under the Plumbase brand and 139 builders’ merchanting branches trading principally under the Buildbase and Jackson brands. 2004 The Group completes its 100th acquisition since 1998, averaging more than one per month. A total of 19 acquisitions are completed during the year, another record year for development. Grafton reaches agreement to acquire Heiton Group plc, subject to regulatory approval. 005 In January Grafton completes the acquisition of Heiton Group plc. This business includes, inter alia, the No. 1 builder’s merchanting operation and the No. 2 DIY retailing brand in Ireland and is a good strategic fit with Grafton’s existing operations and consolidates its position as the leading player in the Irish market. Overall Heiton has over 50 trading locations (six in the UK), an average of 1,900 employees and a turnover in excess of €500 million. We can see from this chronological list of their history that Grafton Group expanded greatly from the mid 90’s to 2005.

Their growth in the UK market was surged on the back of an economic building boom in Ireland. They now have a much greater market and consumer base to compete in but also face a vastly changed environment. The Environment PESTEL analysis Political • Taxation policy – corporation tax remains at 12. 5% in Ireland. Grafton Group is resident in the state and is liable to Corporation Tax on its worldwide profits. The corporation tax rate in the UK is 21% which is a huge source of competitive advantage for Grafton versus its UK competitors. Government stability – the current Irish government is in place till 2012. The UK is in the build up to a general election which could see a change in the current government and policies.

Government policies towards “green” initiatives – grant towards homeowners to improve insulation, grants for solar panels and etc. Economic. The UK and Irish economies are in recession leading to a sharp fall in demand. Consumer confidence has fallen and housing related spending has reduced.  The number of house completions in Ireland is 17,000 units in 2009 which is a fifth of the output during its peak in 2006. Ireland’s stock of empty homes surged 30pc to 345,000 houses in the three years through 2009 as the decade-long property boom collapsed. • Sterling exchange rate weaknesses could lead to lower reported Group earnings on translation of the results of the UK business into euro at the average rate of exchange for the year.  Low Interest rates – the cost of loan repayments is low and for the foreseeable future they should remain constant.  The availability of credit and money is very strict and very few banks are willing to give loans to cash strapped businesses. Unemployment rate in Ireland has increased dramatically, Jan 2008 4. 8% versus Jan 2010 13. 4%. Unemployment rate in the UK has increased but not as dramatic, Jan 2008 5% versus Jan 2010 8%. Sociocultural. Declining employment and incomes for individuals. Higher personal taxes – introduction of income levy, the doubling of health and PRSI levies.  A nation of savers, People are now saving more than before and consumer spending has decreased as a result.  An increasing age demographic in Ireland who will require a home in the future.

Dublin, London, Birmingham. There is a huge capital requirement required to compete with the Grafton group brands within Ireland and their closest competitors are B&Q (20% market share) and Hombase (17% market share). The location of DIY retailing outlets is interesting as during the boom many of our local towns have seen the emergence of industrial retail parks. In Navan 4 years ago Woodies located in a newly developed retail park just off the N3, before that there was Chadwick’s and a number of small independent outlets in the town. Grafton group have 63% of market share in Ireland, as a result the power of competitive response is very strong in Ireland.

However in the UK they are fourth with 10% of market share with Travis Perkins (15%), Jewson (18%) and Wolseley (19%) and as a result their competitive position is much more demanding as they have 3 competitors who are in stronger market position. Substitute products/services We believe the only substitute threat is hire companies, they offer equipment and tools to consumers on a rental basis i. e. per hr, day, week and etc. In the current climate price is a key factor in peoples decisions, therefore consumers may opt to hire equipment for tasks rather than spending vast amounts on equipment that might only be used infrequently. Bargaining power of buyers Grafton’s consumers are powerful because,  Buyers can switch suppliers at no cost.  Buyers purchase from multiple sellers at once, they opt for suppliers conveniently located to the project. Buyers are shopping round for the best value. Bargaining power of suppliers The Grafton procurement process has improved further with new internal appointments to lead heavy side and light side purchasing. There was an increased focus on reducing the supplier base and developing closer alliances with key suppliers. This has resulted in greater leverage being achieved from the Group’s purchasing scale and improved purchasing terms. The volume of products sourced directly through the warehouse facility in Shanghai continued to increase providing a new sourcing option for the Group’s businesses to procure quality products at competitive prices.

We can see from the above that the power rests with Grafton; suppliers are keen to meet the demands of their customer as they have a strong foothold in both the UK and Irish marketplace. Rivalry/Competition In Ireland their competitive position is very strong and through consolidation and job cuts they will be better placed than most building supply firms especially the many small independents that are under serious financial strain as the economic property boom which they depended on is long gone. Many independents face closure and Grafton group and its brands will be best placed to take advantage when the economy recovers over the coming years. Competitive rivals are organisations with similar products and services aimed at the same customer groups.

When we look at one of Grafton’s brands Woodies DIY and their offerings, we see that they are competing with many different retailers. They offer a product range which caters for all your interior and exterior requirements, ex. Bag of cement, paint, timber, kettles, toasters, lighting, TVs, etc. They compete in a very fragmented industry but what many people don’t realise is Grafton is the parent company and all these separate brands from the consumers perspective competing with one another doesn’t matter as all profits go into the one organisation. Grafton is competing with any organisation who offers interior and exterior household products, ex. B&Q, Homebase (part of Home retail group), Argos (part of Home retail group), Power City, Harvey Norman, etc.

From our experiences with Woodies they differentiate themselves from the competition as they offer a complete range of products from their store which means you can get all your needs in the one store. However if you look at the UK operating margin history it was roughly 6/7% over the past ten years versus Irish operating margin history of 11-13%. This means that competition is much stronger in the UK and they must price more competitively in the UK. Opportunities and Threats We can see from the below graphic that their decision to expand its operations in the mid 90s to the UK has been extremely successful with 68% of their turnover coming from the UK. Grafton must now look to the UK with a population of 61 million versus Ireland 4. 2 million as their primary source for turnover and opportunity.

Matrix is an extremely useful tool to assist an organisation in exploring its Business Position based on its competitive position and the attractiveness of the markets under the organisation’s consideration Opportunities identified. Demographics – In Ireland 1. 5 million are under the age of 24 and in the UK roughly 15 million are under the age of 30. These people will require a home over the next 5 – 10 yrs and therefore there will be a demand for housing and renovations to suit individual tastes. Worldwide government energy initiatives – consumers are encouraged to buy more energy efficient products. Cost reduction – with demand in decline it important that Grafton mange their costs, ex. Supplier costs, staffing, acquisitions etc. Competitors – independents are finding the financial strain to difficult and are been forced to close their operations. Economic recovery will see Grafton best placed in the market.  Markets – economists both here and abroad are saying there is a bottoming out of the recession. This should bring about a stable market place. Debtors – if debtors are managed tightly it can have a significant effect on cash flow and bad debts can be reduced to a minimum.  Credit – if debtors aren’t paying on time then Grafton need to look at extending credit terms with their suppliers. We think this very possible as the power is very much with Grafton and not the suppliers. Threats identified We believe the biggest threat to Grafton Group is the level of spending available for construction related projects. The demand for building materials continues to fall in Ireland and signs of improvement are slowly beginning to show in the UK. “The construction industry has now declined for the 34th month in a row, but the rate of contraction is slowing, according to the latest Ulster Bank Purchasing Managers’ Index. ” “Though it’s great to see the UK construction sector turn the corner after two years of relentless contraction, it’s still very early days,” said David Noble, chief executive officer at the Chartered Institute of Purchasing and Supply.

There is now a reliance on the public sector for new work and if they don’t provide the funding for new projects then construction suppliers could be in for a difficult few years. Private investment is very unlikely in the current environment with consumer confidence very low and economic conditions unstable.

We will try to illustrate the current financial situation the group is in compared to previous years and also attempt to analysis the outlook for the future. Grafton’s presence in the construction and raw materials market means they have been very much affected by the economic downturn, in particular the significant slowdown in the construction market and the housing market in both the UK and Ireland. I will use liquidity, profitability, debt and other ratios deemed appropriate as tools to help analyse and diagnose the financial health of the group. I will use a year on year comparison in order to determine the direction in which the group is going and identify any trends.

Analysis: Liquidity

The group has improved its current ratio year on year from 2008 to 2009, this is mainly due to a decrease in current liabilities. This is an encouraging trend for the group. The acid test ratio also shows improvement from 2008 to 2009, this is both a reflection of the improved current ratio and also the work done to try and reduce inventory holding, and reduce cash flow tied up therein and other associated costs.

Cash flow was enhanced greatly by tighter management of inventory, debtors, disposal of assets (sale of freehold land, exhibiting the importance of having a strong portfolio of assets) The cash at bank and on short term deposit has been increased year on year from 2008 to 2009 by approximately 34% this is quite encouraging especially in the current environment (and not due to borrowings), as the adage goes “profit is food, cash is oxygen”. It is fair to say the group has slightly improved its liquidity situation and is more able to meet its outgoings as they fall due. Against the economic backdrop it is quite a good performance and evidence the group are handling the downturn well in a strategic sense. Profitability:

Profitability is the biggest challenge facing Grafton due to the economic downturn and slowdown in the construction and housing markets. Net profit fell dramatically from 2008 to 2009 from €64 million to €13. 5 million, this was quite dramatic. Despite being worrying it was not unexpected, with the focus for the year on debt and cost reduction (and reducing capital expenditure and working capital). Merchanting, Retailing and Manufacturing all dropped considerably in profit terms. Margins were also decreased across all operations. Merchanting still remains the highest source of revenue for Grafton (%85 of group turnover in 2008 and 2009, suggesting strong competencies here).

The loss in manufacturing outweighs the profit made in retailing, it is the profit made in the merchanting division that the real profit pool for Grafton. (divesting in manufacturing division may need to be considered, bar where synergies exist with other divisions, i. e. mortar manufacturing) As a result earnings per share have fallen dramatically from 32. 2c to 5. 4c, Debt: Through measures taken during the year to reduce gearing, Grafton were able to reduce an already modest gearing of 41 % in 2008 to 35 % in 2009. This is an excellent achievement in the circumstances (and exhibits a strong leadership in Strategic choices, direction, and fit). The net debt was reduced by €113. 1 from €435. 6 million in 2008 to €322. 5million in 2009.

The groups current bank facilities are subject to a minimum net assets requirement (€301,984 cash at bank end2009, up from €224,834 end 2008, leaving the Group in a strong cash position). Return on Investment: Return on investment is down considerably from 2008 to 2009 10. 12% to 2. 19%, as profits dipped quite considerably resulting in the dramatic slump. Again this is worrying but not unexpected as the Group were attempting rationalization and consolidation (strong market share results exhibit some success in this regard) Borrowings: The ratio of new to old finance borrowings and ratio of short term to long term finance borrowing both improve year on year (1:6. 3 to 1:7. 29 and 1:4. 83 to 1:5. 2 respectively). Again this shows strong evidence of reducing debt and decreased borrowing.

It is fair to say that Grafton is currently In a very challenging operating environment with the downturn In markets seriously affecting their profitability, dividends, and returns. But the Group finds themselves in an improved liquidity position, as well as considerably reducing their gearing, they also greatly increased their cash at bank negating greatly problems with accessing credit.  The highest share price achieved was nearly 23 in early 2007 which illustrates the decline in the industry, and puts the company’s current performance into context. The Corporate information. om Wright quality ratings rates Grafton’s investment quality as BBD0 which translates as: Liquidity:Excellent Financial Strength:Excellent Profitability:Fair Growth. The UK economy has moved out of recession in late 2009 which is encouraging news for Grafton as 68% of its turnover comes from this source. The amount of new house sales and builds are on the increase from a very low level starting which is very encouraging as the merchanting division is Grafton’s real profit pool. The Merchanting market has remained structurally sound despite the downturn and can expect a growth rate above normal trends that Grafton are well positioned to take advantage of.

The Irish economy remains in recession but is expected to return to growth by the middle of the year boosted by global growth and improved export conditions. A weak employment situation, low consumer confidence and tight credit conditions make the market conditions in Ireland even more challenging, coupled with the massive drop in new house builds as housing over supply is still a problem. Further rationalisation measures and/or closures in the Irish operations should be considered. Group turnover stabilised from H1 2009 to H2 2009 which is encouraging. The cost reductions and integration benefits in the Merchanting divisions improved profitability in H2 2009.

The rationalisation achieved and the increased activity expected form the UK new Housing market means that Grafton are well placed to take advantage of the recovering markets this year. Rationalisation measures:

• Employee base reduced in both Ireland and UK
• Cost reduction initiatives progressed with significant results
• 18 locations consolidated or closed and 10 new locations added
• Credit terms from suppliers renegotiated
• Improved inventory management
• Debtors managed tightly with significant cash generation

Costs rationalized by €80 million in 2009 Plans for 2010:

• Further rationalisation costs will be incurred in 2010 Wider product range yielding margin growth
• Emphasis on overhead control and working capital management

Attempt to obtain full benefits of integration Opportunities 2010:

• Reduced cost base
• Market share gains
• Competitors failing
• Irish Construction close to bottoming out
• Signs of recovery in markets
• Positive Demographics
• Government Renewable energy initiatives Group Strengths
• Highly cash generative streamlined businesses
• Significant cash deposits ensures liquidity
• No P Banking Covenants -protection from exchange fluctuations now in banking agreements
• Strong balance sheet –modest gearing 35%
• No material refinancing required before 2011 68% of turnover in UK (increased mortgage lending, & housing sector activity in UK)
• Prominent market positions in the UK and Ireland –market share circa 10% and 20% respectively (satisfactory market share performance)
• Motivated management teams
• Proven strategic record, past experience of managing down cycles
• Spread risk
• Economies of scope amongst SBU’s
• Synergies across SBU’s

It is clear that Grafton have the threshold competences to meet customer’s minimum requirements, and also the threshold competences to provide the same as they continue to exist (and are in a decent position to go forward). But what are Grafton’s core competencies, (activities and processes that are difficult for competition to imitate), what are their unique resources (difficult for competition to imitate or obtain). And what are the critical success factors for Grafton’s customers (the product features especially valued by customers and therefore the company must excel at). As 85% of Grafton’s turnover comes from their merchanting division this is where we will focus.

Some of Grafton’s Brands, Sbu’s and subsidiaries in Merchanting include: Ireland: Heiton Buckley Chadwicks Cork Builders providers Telfords Heiton steel UK: Buildbase Jackson Building Centres Macnaughton Blair Selco Builders Warehouses Plumbase (plumbing) CPI Euromix (mortar) Critical Success factors for customers (a sample of but not limited to): Quality service and products Reliable products services Speed of service National Distribution Online ordering / catalogue. Product knowledge and advice available Simple pricing Self service capabilities “One stop shop” capabilities Wide selection / availability of products hire services Prompt & accurate delivery of products/services

Strong partnership team working capabilities Trade deals/initiatives (bulk buying, relationship development) Unique resources (a sample of but not limited to): Wide network of branches Vertically integrated operations Very experienced management team Backed by strong corporate parent Financial resources (over 300 million in cash) Experience of managing previous downturns Strong Brand equity, profile and Goodwill Ability to leverage position as largest mortar manufacturer National Distribution Network (Civil & Lintels) Core Competences (a sample of but not limited to): Corporate parenting Synergy managing Proven vertical integration abilities Cross SBU linkages

Co-ordination of multiple and diverse activities Excellent Financial management First class customer service Mortar manufacturing (no 1 in market) Strong Management at SBU level Strong Value chain Strong Value network Strategic Marketing Autonomy at SBU level Market Development Product development and category management National and local distribution competences The above are some examples of the critical success factors Grafton Group need to excel at for customers, and some of the unique resources and core competences that help them to meet those CSF’s. By building those resources and capabilities that help Grafton deliver value for its customers and help obtain competitive advantage.

Corporate Governance What is Corporate Governance? “Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society. ” (Sir Adrian Cadbury, UK, Commission Report: Corporate Governance 1992) Ireland’s recent history of corporate governance has been highlighted with the governments bank NAMA, National Asset Management Agency. Builders, bankers and the senior public servants who failed to regulate these sectors are perceived to be getting off scot-free from the crisis they caused. “Sean Barrett – Irish Times 2nd September 2009.

Brian Lenihan has taken action that is costing taxpayers billions of euro that would have not have been required if Corporate Governance and common sense regulation was adhered to. The bank regulators, a supposed independent body, did not adhere to procedures and turned a “blind eye” to what was practiced over the last 20 years. “The state ownership policy should fully recognise the state-owned enterprises’ responsibilities towards stakeholders and request that they report on their relations with stakeholders.

Making the right decisions with all the information without compromising the integrity of the organisation.  Corporate Cartoons, Grinning Plannet Grafton Group’s Compliance with the Combined Code The Board is committed to maintaining high standards of Corporate Governance. The Board is accountable to the Company’s shareholders and this statement describes how it applies the principles of good governance set out in the 2006 FRC Combined Code on Corporate Governance which is appended to the Listing Rules of the Irish and London Stock Exchanges. The Board – who reports to whom?

The Board of Directors is made up of nine members at 31 December 2008 comprising the Executive Chairman, three other executive Directors and five non-executive Directors. Mr. Anthony Collins, Deputy Chairman, is Senior Independent Director. The Board believes that it has the skills, knowledge and experience required by the scale, geographic spread and complexity of the Group’s operations. The Board routinely meets seven times a year and additionally as required by time critical business needs. There is also contact with the Board between meetings as required in order to progress the Group’s business. The Board takes the major decisions while allowing management sufficient scope to run the business within a centralised reporting framework.

The Board has a formal schedule of matters specifically reserved for its decision. This covers the key areas of the Group’s business including financial statements, budgets, acquisitions, major items of capital expenditure and the strategic development of the Group. The Board’s responsibilities also include ensuring that appropriate management, development and succession plans are in place; reviewing the environmental and health and safety performance of the Group; approving the appointment of Directors and the Company Secretary; approving policies relating to Directors’ remuneration and severance and ensuring that satisfactory dialogue takes place with shareholders.

The Directors have access to the advice and services of the Company Secretary who is responsible for advising the Board through the Chairman on governance matters. The Company’s Articles of Association and Schedule of Matters reserved for the Board for decision provide that the appointment or removal of the Company Secretary is a matter for the full Board. Directors have full and timely access to all relevant information in a form appropriate to enable them to discharge their duties. Reports and papers are circulated to Directors in preparation for Board and committee meetings. The non-executive Directors, together with the executive Directors, also receive monthly management accounts, various reports and other information to enable them to review the performance of the Group on an ongoing basis.

The Board continues to hold the view that there are compelling commercial benefits to the Group and its shareholders in combining the roles of Chairman and Chief Executive and the holding of the combined roles by Mr. Michael Chadwick. The combination of the roles is balanced from a governance point of view by the strong input of the five independent non-executive Directors on the Board and the Board’s committee structure. Directors’ Independence and Board Balance It is Board policy that the Board should include a balance of executive and non-executive Directors such that no individual or small group of individuals can dominate the Board’s decision making. Five non-executive Directors, Mr. Anthony E. Collins, Ms. Gillian Bowler, Mr. Richard W. Jewson, Mr. Roderick Ryan and Mr. Peter S. Wood are considered by the Board to be independent of management and free from any relationship which could materially interfere with the exercise of their independent judgement. The Board has therefore determined all five Directors to be independent. Mr. Collins was appointed to the Board in 1988 and both Ms. Bowler and Mr. Jewson were appointed to the Board in 1995. The length of their service on the Board exceeds nine years and the 2006 FRC Combined Code provides that an explanation be made to shareholders concerning their continued independence. The Board considers that the integrity and independence of these Directors is beyond doubt. All three Directors are financially independent of the Company and have other significant commercial and professional commitments.

The Company’s Articles of Association provide that one third of the Directors retire by rotation each year and that each Director seek re-election at the Annual General Meeting every three years. New Directors are subject to election by shareholders at the next Annual General Meeting following their appointment. It is Board Policy that non-executive Directors are normally appointed for an initial period of three years, which is then reviewed. It is also Board Policy that a non-executive Director who has served on the Board for more than nine years will retire annually and will offer him/ her for re-election in any case where it is proposed to exceed nine years. The overall composition and balance of the Board is kept under review. To allow corporate governance to drop in standards allows too many possible problems arise.

Directors making short term decisions for their own benefit cannot be tolerated and without strong non-Executive Directors organisations have suffered. E. g. Enron, Independent News and Media. Performance of the Board Grafton Group’s long standing non Executive Directors have been re-elected at many AGMs which proves the confidence of their value to shareholders. At the beginning of the year their share price of building up to their financial report for 2010. When we were given Grafton Group as our project the share price was €2. 70, week of April 12 it is trading at €3. 40/share, an increase of 25%. Their board are doing a good job and have processes in place that do not allow any maverick activities. They tick all the boxes of operating independently of management.

Insider dealing is not evident, “interlocking” does not exist similar to Jim Flavin, member of both Fyffes and DCC. The CEO of Woodies and Atlantic Homecare is Ray Coleman. Some would argue the same CEO of both could lead to conflict but as both have different strategies it make business sense for this to be the case. Corporate Social Responsibility – CSR and Ethics “The Grafton Group recognises the importance of conducting its business in a socially responsible manner. This is demonstrated in the way we deal with our employees, customers, suppliers and the communities in which we do business. The Group considers that corporate social responsibility is an integral element of good business management. Grafton Group Website “Business only contributes fully to a society if it is efficient, profitable and socially responsible”

“Few trends would so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their shareholders as they possibly can”- Milton Friedman (1962) Grafton Group’s CSR is centred on the following areas.  The Environment – Reduction of waste that impacts on environment, affiliation to Irish and UK environmental specialists. e. g. Biffpack in UK ? Health and Safety – Adherence to best practice for employees, customers and visitors to their stores Human Resources – Acknowledge the importance of employees to achieve success, reward them accordingly and become number one choice of employment in their field ? Community – Recognise the responsibility to the communities in which they are located, support local charities e. g. donated tools and equipment to Goal following Haiti earthquake in 2009 Grafton Group, we feel, is what all corporations do – tick the box of CSR! Very few Financial Reports had any reference to CSR until last 10-20 years. To make them stand out on CSR issues as Ben and Jerry’s Ice Cream or The Body Shop do, they would have to incorporate it into their overall business strategy. Would this give them a competitive advantage over their business rival? Would CSR promotion become part of their strategy?

Our view is that a company in the industry it serves will be dictated by their consumers as to how important CSR really is. In Grafton Group’s case this will not happen. Their stance on CSR is Laissez Faire to Enlightened Self-Interest. The emphasis is mainly on their shareholder short term orientation i. e. highest profit as possible and adhere to the law at all time. They may worry about how they are perceived such as pension fund investors. They are definitely not a Shaper of Society where they influence society in a better light and not always driven by super profit making e. g. Paul Newman food investment and Niall Mellon Trust. Shareholder and Stakeholder Expectations and Influences

The difference in both shareholder and stakeholder expectations is determined largely on the performance of The Grafton Group, history of performance, market in which it trades, promises made and promises previously delivered on. Since they began trading Grafton Group has consistently made profit and grown which has given shareholders a return on their investment. The collapse of the building trade in Ireland and UK has meant a large fall in share price but due to the market’s performance no shareholder could have expected anything else. Bob de Wit and Ron Meyer, 1998 describes the value perspective of shareholders and stakeholders and how, if any, interlink. In summary the difference is that shareholder’s perspectives have an ends, i. e. make a profit and value of company increases.

Stakeholder’s perspectives have and ends and a means where profit is a want but not at the cost of something that would be considered unethical. The power that a board such as Grafton Group must withstand can determine whether shareholders or stakeholders have more of an influence on decisions than is healthy. “Power is the ability of individuals or groups to persuade, induce, or coerce others into following certain course of action. ” Johnson, Scholes and Whittington, P160 If an organisation succumbs to the power of an outside influence their control is diluted. Some people within organisations, by right, have more power than other, e. g. the formal power a CEO enjoys. ? Legitimate Power: Power of the position, CEO ? Reward Power: e. g. Manager deciding who gets overtime Coercive Power: who decides on who gets the bad jobs to perform e. g. “ if you do not do this you will not get the other”, bullying style ? Expert Power: This is more a personal power that a knowledge based professional may exercise ? Referent Power: This explains the influential power someone can exhort through charisma or personality traits e. g. Richard Branson of Virgin Group Johnson, Scholes and Whittington, P161 It is interesting that the brand power Woodies and Atlantic Homecare enjoy in the home DIY market sector is a symbol of power for both shareholders and stakeholders. Stakeholder mapping is an interesting way to determine the power and level of interest certain groups have in organisations.

The level of interest within Grafton group lies mainly with employees, shareholders and Board of Directors. The Key Players are the Board of Directors and Shareholders as they have a vote as to who by and how the company is run. Stakeholders such as government are low in power and would have a low level of interest. Some of the manufacturing Grafton Group are involved in may require them to be socially responsible to the community in which they are located and must keep them informed of any changes that may affect them. They would have a high level of interest but a low form of power. Culture of Organisations and Grafton Group The culture of organisations is largely shaped by the founding fathers. For example Lever Bros.

Ltd has a long tradition with social responsibility before it was known as CSR. William Heskeath Lever first established Port Sunlight village to improve the living conditions and well-being of employees of the Port Sunlight Soap factory. This created a culture of CSR which is maintained today. Similarly with the Grafton Group, CEO Michael Chadwick, has been with Grafton Group since he was 23 years of age. The culture of the company is largely a result of his business philosophies and strategies. We asked for an interview but we were declined, we asked for a list of questions to be answered if we sent them to his secretary and this too was declined so it is difficult to get an insight into his business philosophy.

The Grafton Group do not apologise for being shareholder oriented in terms of profits in the form of dividends or company value increase. They have not allowed themselves be affected by the current economic climate and do not show any forms of strategic drift. Strategic drift is where organisational strategies develop incrementally on the basis of cultural influences and do not keep up pace with the changing environment in which they trade. Grafton have reacted to the downturn of their business and do not wait for changes to be made as reactionary. Henry Mintzberg has noted that “strategy is a pattern in a stream of decisions”. If decisions are made as a reaction to their environment it can be too late.

Grafton Group’s Board of Directors is long serving and successful, due to this fact they have created a culture of expectancy for shareholders and for themselves to delivery. This behaviour filters through to line managers and front of customer staff (boundary pners) to achieve success. The success of the past and alignment to environmental change has created a winning culture. They have created a theme around their strategy and have not deviated from it. They operate in Ireland and the UK in markets they understand and do not expand outside these industries. This helps succession planning for managers moving from business units to gain more experience keeping within the core competencies of the Grafton Group. Strategic Direction and Corporate level strategy

Strategic Vision is a detailed future oriented vision of the strategic direction that a company is planning to take going forward, that takes into account the competences and capabilities that it both has and needs to achieve to achieve its vision. “ A strategic vision is a road-map of a company’s future, providing specifics about technology and customer focus, the geographic and product markets to be pursued, the capabilities it plans to develop, and the kind of company that management is trying to create” (Thompson & Strickland 2001, P6). According to Johnson, Scholes and Whittington 2008, the “Exploring Corporate strategy model is made up of the corporate culture, business ethics, CSR, the strategic position, the strategy in action and strategic choices.

As we can see here, Grafton has had a very strong acquisition based strategy to vertically integrate with all the suppliers and related business in an effort to grow in strength and position and to make themselves a real presence in the Irish and UK markets. However it’s all well and good to acquire all these other business, but what is the point in having them unless you can use them to your advantage. This is Grafton’s role and responsibility as the now corporate parent to all these acquisitions, to turn them from simply business units into strategic business units that will benefit the group as a whole and strategically fit.

The corporate parent as a Synergy manager. A corporate Parent identifying factors are a large corporate office with a main emphasis on facilitating cooperation across its SBU’s with a continued focus on cost reduction, scale related benefits, closer integration, branch consolidation and brand synergies. As a corporate parent to its SBU’s, Grafton group seeks to enhance value across its business units by managing and instilling synergies across its business units. The backward, forward and horizontal integration of its suppliers of raw materials and competitors has afforded Grafton a strategic advantage. In order to promote synergy management across its strategic business units, Grafton group tries to create the synergies by thinking holistically and viewing the SBU’s as interlinked with a common purpose between such as;

• DIY retailing – Woodies and Atlantic Homecare
• Manufacturing – CPI Euromix, MFP and Wright windows Merchanting – Heiton Buckley, Chadwicks, Cork builders providers and Telford

The main point to remember is that the business units should benefit from the corporate parent by the co-operation between them that’s afforded by the corporate centre Grafton Group. A more streamlined UK merchanting business incorporating the Buildbase, Plumbase and Jacksons brands and specialist merchanting businesses is enabling a deeper integration of the overall business. The new structure will result in significant synergies beyond the rationalisation measures already implemented. These arise particularly in procurement, accounting and other central services.

A single management team is now in place for all brands operating from a single head office location. Costs continue to be more aligned with sales and the management team works closely with the Group Chief Operating Officer in driving cost reduction, branch consolidation and brand synergies while leveraging scale-related benefits. With regard to synergy management the following questions should be answered:  Is there common purpose between business units – YES ? Does parent try to achieve co-operation between business units – YES ? Provide central services and resources – YES In 2009 one of Grafton’s management priorities was “To unlock latent synergies in downturn”. (Grafton Financial results 2009 PP)

This is the tendency for strategies to develop incrementally on the basis of historical and cultural influences but fail to keep pace with a changing environment. (Liam Bolger, lecture notes 2009). Strategic drift is certainly not something that Grafton can be accused of as they react quickly to the economical downturn to keep themselves competitive, especially within the domestic market of Ireland where there core strength lies. Grafton Group has reduced their overall debt from €584 million (2005) down to €322 million (2009). The majority of this occurred in the last 2 years with a reduction of €228 million or 41% (Grafton Group plc final results 2009) Employee base reduced in both Ireland and UK Cost reduction initiatives progressed with significant results

• 18 locations consolidated /closed and 10 new locations added
• Credit terms from suppliers renegotiated
• Debtors managed tightly with significant cash generation
• Costs rationalised in 2009 by €80 million

Further plans to manage through 2010:  Further rationalisation costs to be incur.

Corporate Social Responsibility in Banks S. Kavitha[1] Abstract Corporate social responsibility stands for business contribution to sustainable development and covers company’s active participation in different fields, human rights, human resources, relations with clients, suppliers, and other stake holders, corporate governance, environment and contribution to community and society. The social responsible attitude is integral part of the identity of financial institutions like banks, and it is one of their distinctive features.

The Reserve Bank of India has asked the banks to pay special attention towards integration of social and environmental concerns in their business operations. Many of the newly formed private and foreign banks are aware of the importance of such a step and therefore are having an active CSR department in their banks. This paper is an attempt to explain the concept of corporate social responsibility and the different CSR practices followed by banks in India. Key Words: CSR – Corporate Social Responsibility, Friedman’s View, Carroll’s View, Discretionary Responsibility

Corporate Social Responsibility in Banks S. Kavitha[2] Introduction Corporate social responsibility stands for business contribution to sustainable development and covers company’s active participation in different fields, human rights, human resources, relations with clients, suppliers, and other stake holders, corporate governance, environment and contribution to community and society. The concept of social responsibility proposes that a private corporation has responsibilities to society that extend beyond making profit.

Social responsibility is the way of life for most business organizations. It enables all such activities ranging from providing safe products and service to giving a portion of company’s profit to welfare organization. The social responsible attitude is integral part of the identity of financial institutions like banks, and it is one of their distinctive features. The Reserve Bank of India has asked the banks to pay special attention towards integration of social and environmental concerns in their business operations.

Many of the newly formed private and foreign banks are aware of the importance of such a step and therefore are having an active CSR department in their banks. Concept of Social Responsibility: Corporate social responsibility is the sense of obligation on the part of companies to build social criteria in to their strategic decision-making. The concept implies that when companies evaluate decision from an critical perspective there should be presumption in favor of adopting course of action that enhance the welfare of society at large. The goals selected might be quite specific. To enhance the welfare of communities in which company is based. – To improve the environment – To empower employees to give them a sense of self worth. Different views on social responsibility Friedman’s Traditional View of Business Responsibility Urging a return to a laissez-faire worldwide economy with a minimum of government regulations, Friedman argues against the concept of social responsibility. Adam Smith and Milton Friedman, economists, according to them the only responsibility of business is to perform its economic functions efficiently and provide goods and services for society and earn maximum profits.

By doing so business performs its economic functions and leaves the social functions to other institutions of society, such as the government. A businessperson who acts responsibly by cutting the price of the firm’s product to prevent inflation or by making expenditures to reduce pollution, or by hiring the hard-core unemployed, according to Friedman, is spending the shareholder’s money for general interest. Even if businessperson has shareholder permission or encouragement to do so, he or she is still acting from motives other than economic, in the long run; it may harm the society the firm is trying to help.

Friedman referred o the social responsibility of business as ‘fundamentally subversive doctrine’ and stated that “There is one and only one social responsibility of business, to use its resources engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception of fraud. But this view is severely criticized on several grounds. On the other extreme, there is opposite view, which favors the position that it is imperative for businesses to be socially responsible.

This is based on the argument that business organizations are a part of society and have to serve primarily societal interests rather than narrow economic objectives such as profit maximization. In doing so they have to deal with social concerns and issues and have to allocate resources for solving social problems. Carroll’s four responsibilities of business. Archie Carroll proposes that the managers of business organizations have four responsibilities Economic Responsibilities

Economic responsibilities of a business organization’s management are to produce goods and services of value to society so that the firm can repay for its creditors and shareholders. Legal Responsibilities Legal responsibilities are defined by governments in laws that management is expected to obey. For eg, U. S. business firms are required to hire and promote people based on their credentials rather then to discriminate based on non-job-related characteristics such as race, gender or religion. Ethical Responsibilities Ethical responsibilities of an organization’s management are to ollow the generally held beliefs about behavior in a society. E. g. , Society generally expects firms to work with the employees and the community is planning for layoffs, even though no law may require this. The affected people can get very upset if an organization’s management fails to act according to generally prevailing ethical values. Discretionary Responsibilities Discretionary responsibilities are the purely voluntary obligations a corporation assumes. Examples are philanthropic contributions, training the hard-core unemployed, and providing day care centers.

The difference between ethical and discretionary responsibilities is that few people expect an organization to fulfill discretionary responsibilities, whereas many expect an organization to fulfill ethical ones. Carroll lists these four responsibilities in order of priority. Social responsibility includes both ethical and discretionary but not economic and legal responsibilities. A firm can fulfill its ethical responsibilities by taking actions that society tends to value but has not yet put into law.

When ethical responsibilities are satisfied, a firm can focus on discretionary responsibilities. The discretionary responsibilities of today can become the ethical responsibilities of tomorrow. E. g. , Provision of day care facilities, is moving rapidly from being discretionary to ethical responsibility. Benefits received from being socially responsible 1. Being known as a socially responsible firm may provide a company a competitive advantage. Programs to reduce pollution can actually reduce waste and maximize resource productivity. 2.

Their environment concerns may enable them to charge premium prices and gain brand loyalty. (Ben & Jerry’s Homemade Inc. ) 3. Their trustworthiness may help them generate enduring relationships with suppliers and distributors without needing to spend a lot of time and money policing contracts. (Maytag) 4. They can attract outstanding employees who prefer working for a responsible firm (Procter & Gamble) 5. They are more likely to be welcomed into foreign country (Levi Strauss) 6. They can utilize the goodwill of public officials for support in difficult times (e. . Minnesota supported Dayton-Hudson’s fight to avoid being acquired by Dart Industries of Maryland) 7. They are more likely to attract capital infusions from investors who view reputable companies as desirable long-term investments (Rubbermaid). CSR in India India has been named among the top ten Asian countries who are paying an increasing importance towards corporate social responsibility (CSR) disclosure norms, a survey says. According to social enterprise CSR Asia’s Asian Sustainability Ranking (ASR), India was ranked fourth in the list, which was topped by Australia.

The other countries in the list include China (second), Hong Kong (Third), Japan (fifth), Malaysia (sixth), Pakistan (seventh), Philippines (eighth), Singapore (ninth) and Thailand (tenth). The 2009 ASR list was dominated by Australian companies, with eight out of the top ten companies analysed coming from there, followed by India, the survey said. However, the report further said although there are increasing levels of disclosure in the Asian region, it still is generally poor compared with Europe and North America. In India we find surprisingly high levels of disclosure, particularly from large companies with recognised brands such as Tata and Infosys. Leading oil companies (such as ONGC and the Indian Oil Corporation) also have reasonable levels of disclosure,” the report said. CSR initiatives in banks The benefits of CSR for companies include increased profit, customer loyalty, trust, positive brand attitude and combating negative publicity. CSR strategies have been embraced by the international banking community. 0 Major international private banks have signed the Equator Principles agreement which supports socially responsible development. (Eg of such banks are Citigroup, JPMorgan, Bank of America, ABN Amro, Barclays, HSBC and ING). Research suggests that dissatisfaction is the major reason why customers switch banks this arises mainly because of rising fee. Normally to get more favorable price, customers try to switch banks. Most of the customers have accounts in more than one bank so they find it very easy to compare the services and accordingly they do their transactions.

So, customer turnover has become an important issue for the banks. The customer loss may have an adverse effect on bank market share and profit. So if the banks concentrate more on CSR and spent more for this that will create a good image for the banks which in turn will bring many new customers to the banks and also the customer loss can be reduced. RBI guidelines on CSR The Reserve Bank of India is now rooting for environment conservation and fair social practices.

The central bank has asked banks to put in place a suitable and appropriate plan of action towards helping the cause of ‘sustainable development’, with the approval of their boards. Spurred on by the worldwide momentum in sustainable development and the initiative being taken on various fronts by different organisations, including all major banks globally, Indian banks have been encouraged to actively look at corporate social responsibility, sustainable development and non-financial reporting.

Among banks in India, ABN Amro Bank was the first to put out a ‘sustainability report’ recently. It includes key indicators on the bank and its subsidiaries’ environmental (like paper, water and electricity usage) and social governance performance. Other companies, which issue sustainability reports, include ITC, Tata Tea, Dr Reddy’s and Reliance. Sustainable development essentially refers to the process of maintenance of the quality of environmental and social systems in the pursuit of economic development.

Non-financial reporting is basically a system of reporting by organisations on their activities, which includes environmental, social and economic accounting. Best CSR practices in Banks – Some Examples SBI – State Bank of India Apart from the normal banking operations, the Bank, as a responsible and responsive corporate citizen, seeks to reinvest part of its profit in various community welfare projects to improve the quality of life of the poor, neglected, weaker and downtrodden sections of society. In the financial year 2007-08, the Bank made donations aggregating Rs. . 11 crore to various Relief Funds and also to NGOs / Trusts / Societies for their projects with social orientation. In recognition of its contribution to Rural Community Development, the Bank was awarded the prestigious Reader’s Digest Pegasus Corporate Social Responsibilities Award 2007. Infact, it was the only Bank to have received this recognition. Under a new scheme named ‘Adoption of the Girl Child’ over 8,300 poor girl children have been adopted by various branches throughout the country to meet their personal and educational expenses.

This is not merely a financial assistance scheme but offers emotional and psychological support to the ‘adopted girls’ due to the active involvement and care of the SBI Ladies Clubs. From the Research and Development Fund, the Bank has so far extended Rs. 6. 61 crore as research grants to 71 chairs / research projects at various Universities and Academic institutions. For the current year SBI has extended 100000 Sterling Pounds to London School of Economics for establishing an India Observatory and I. G.

Patel Chair at their Asia Research Centre in participation with RBI. ICICI Foundation An example for CSR practices by banks is the ICICI foundation. ICICI Bank runs a very active and well known foundation in India but there is no clearly visible link of the ICICI Foundation on the website. ICICI is also very active in its support of government programs to improve the livelihoods of people. ICICI Bank has joined hands with NGOs to reach out to children in ten states helping them have better access to education Standard Chartered Bank

The HIV/AIDS pandemic is a global challenge faced by Standard Chartered as a business. In different developing countries HIV has a significant impact and they respond to this programme through Living with HIV programme, , a global policy aimed at protecting basic human rights, promoting the health of their employees and keeping the business costs associated with HIV/AIDS to a minimum. The programme is well established and focuses on the following areas: •Raising awareness with their employees through training Educating local people about the prevention and treatment of HIV •Strengthening their position as thought leaders in HIV/AIDS •Sharing their knowledge with other organisations Standard Chartered, which happens to be one of the country’s largest international banks, is involved in real partnerships with local community organisations, involving active participation of its employees in their community projects. It is the human face of banks. Or what is called corporate social responsibility, the new term devised for the social service that companies do with some of their profits.

The global community programme of the bank is called ‘Believing in Life’. Part of this is the internal initiative ‘Living with HIV’. An extension of the programme in Africa, it seeks to create awareness about this deadly disease and thus help prevention by educating all its staff across the different countries from where the bank operates. Banks like HDFC, SBI, ICICI, HDFC, Standard Chartered Bank are now active in a host of areas including primary education, women empowerment, rehabilitation of poor, and aged environmental issues Future of CSR

The Corporate Social Responsibility has increased in importance around the world. The world becomes a global village in the information technology era. Sharing and accessing of information become very easy. All big companies are expanding their business opportunities all over the world. Simultaneously the CSR activities also expanding speedily where company initiatives started. Now these days every company feels CSR is unavoidable and responsible thing. Moreover companies allocating separate budget and deploying professionals for CSR initiatives.

It shows that it is emerging as a powerful thing in social development sector. The Corporate Social Responsibility (CSR) is high on every corporate agenda. Social commitment is an essential part of every company. Corporate social responsibility involves the aspiration to make a positive contribution to the progress of the company and society. If a company initiates CSR wing the company concerned need to work hard consequently on a formal, coherent and transparent policy in this field. Then only the CSR will become a potential area for development of the society.

Conclusion The rapid information technology innovations are changing the face of Corporate Social Responsibility. The concept of CSR is still debatable in democratic countries. There is a major criticism in all over the world is corporate companies are utilizing this concept to build their business expansion. Through this concept corporate companies are liaison and lobbying with higher bureaucracy in the government to get permissions/licenses to their companies easily. Many companies are getting tax exemptions by carrying out these social development activities.

The increased awareness of CSR has also come about as a result of the United Nations Millennium Development Goals, in which a major goal is the increased contribution of assistance from large organizations, especially Multi-National Corporations, to help alleviate poverty and hunger, and for businesses to be more aware of their impact on society. There is a lot of potential for CSR to help with development in poor countries, especially community-based initiatives. CSR can be very much useful for the financial institutions like banks to get good reputation in the society.

Banks should do the CSR activities to the fullest benefit to the society and not just for the sake of doing it. References Sen, S. , Bhattacharya, C. B. , Korshun, D. (2006), “The role of corporate social responsibility in strengthening multiple stakeholder relationships: a field experiment”, Journal of the Academy of Marketing Science, Vol. 34 pp. 158-66. Bhattacharya, C. B. , Sankar Sen and Daniel Korschun (2008), “Using Corporate Social Responsibility to Win the War for Talent,” MIT Sloan Management Review, 49 (2), 37-44; “The Good Company”, The Economist (2005-01-20).

Retrieved on 2008-25-07 Financial Express, Wednesday, Oct 28, 2009 at 1541 hrs IST http://www. karmayog. org/csr501to1000/csr501to1000_21878. htm http://www. csbanking. com. au/ http://economictmes. indiatimes. com/News http://www. deccanherald. com/deccanherald/july202004/spt9. asp; http://www. financialexpress. com/fe_full_story. php ———————– [1] S. Kavitha, MBA,MCA. ,MPhil. ,NET. , Asst. Prof, MBA, Vivekanandha Institute of Information & Management Studies, Tiruchengode, Namakkal Dt. , – 637 205, Research Scholar, Anna University, Coimbatore Phone:99421-60277, email: kavi_sulur@hotmail. om [2] S. Kavitha, MBA,MCA. ,MPhil. ,NET. , Asst. Prof, MBA, Vivekanandha Institute of Information & Management Studies, Tiruchengode, Namakkal Dt. , – 637 205, Research Scholar, Anna University, Coimbatore Phone:99421-60277, email: kavi_sulur@hotmail. com ———————– Economic Legal Ethical Discretionary (Must do) (Have to do) (Should do) (Might do) Social responsibilities