Birla defines “new paradigm of corporate citizenship”

The very definition of the conventional role of corporates and social responsibility of business as merely pursuing legitimate profit and shoring up shareholder value is undergoing a definitive change, said chairman of the Aditya Birla group Kumar Mangalam Birla, while addressing the inaugural session of the RI zone institute The Odyssey, convened by RI director Kamal Sanghvi.

It was Nobel Laureate Milton Friedman who “famously and rather pithily said that the social responsibility of business is to increase its profits. Ironically, the 50^th anniversary of that famous statement came bang in the middle of the Covid-19 pandemic. That statement had weight and logic which explains its longevity but that view is now changing,” he said.

The paradigm of business is moving from mere shareholder capitalism to stakeholder capitalism. Good corporate citizenship goes way beyond legal compliance and is all about moral and ethical behaviour.

No less an organisation than the Business Roundtable, an apex association of CEOs of America’s top companies had issued a statement in 2019, redefining the purpose of a corporation. Signed by 200 top CEOs, including those of JP Morgan, Amazon, Walmart, “their joint statement effectively underlines that the paradigm of business is moving from merely shareholder capitalism to stakeholder capitalism. That a corporation should not just maximise shareholder value but also the wellbeing of employees and the community at large. The words of Friedman, once treated as gospel, are now being questioned.” The new maxim of corporate responsibility goes beyond shareholder value, and has a broader umbrella of benefits to all stakeholders.

Birla added: “And I’d say that while doing so, it must also earn the implicit license to operate in society at large.” This is not the “conventional license that operated during the permit raj in India and which was dismantled 30 years ago. This is what I call the new paradigm for corporate citizenship. It is beyond just obeying laws and regulations, which now increasingly apply to the welfare of employees and safeguarding of the environment. Good corporate citizenship goes way beyond such legal compliance and is all about moral and ethical behaviour. Peter Drucker, the father of management, said a successful business stands on the foundation of morality, it is not an inanimate thing but is also expected to be humane, have empathy and be a caring friend of society.”

The industrialist added that in “this new paradigm, the license to operate has to be earned, through respect, credibility and acceptability.” It is based on genuineness and “willingness to match word and deed, abide by principles and ethics, no matter what. Such social acceptance has to be earned and no government or licensing authority can grant it.”

Actually, he added, this Business Roundtable statement was preceded by India’s landmark 2013 CSR law, “which looks in hindsight remarkably enlightened, and India is perhaps the only country in the world which ­mandates that 2 per cent of after-tax profit should be compulsorily spent on CSR.”

But then, Birla said, corporations “like ours have been engaged in what is now called CSR for more than a century. My great grandfather, G D Birla, was a believer in Mahatma Gandhi’s view of corporations being trustees of social wealth. That spirit has always manifested in our community engagement. It is humbling to know that our corporation has touched the lives of over nine million people through our CSR exercises, so ably led my mother Rajashree Birla.”

Even during the Spanish flu of 1918, Rotarians were at the forefront of community service. Few institutions can claim to have served humanity through the course of two pandemics, spanning over a century.

Good corporate social citizenship goes well beyond lip service and is not just a tick mark of compliances, ­motherhood statements or greenwashing as some critics have called it.

Maintaining that good corporate citizenship reflects the internal character of an organisation, “following a code of ethics and values which are its very foundation, and are articulated frequently and visible in the day-to-day operations and lived on a daily basis,” Birla gave a telling example. In the early days of the Covid pandemic, when panic buying was being witnesses all around the world, “a UK retailer opened its store one hour earlier every morning exclusively for senior citizens to buy their provisions. This simple gesture exemplified the empathy and integral values that all good corporate citizens must have.”

Responsible corporations should not only evangelise but get others to join the bandwagon by example, so that good corporate citizenship becomes a movement led by the private sector and not forced by the government or regulations. For example, “our fibre business insists on sourcing wood pulp as raw material only from suppliers who practise sustainable forestry. I am sure such behaviour will soon reach a tipping point,” he added.

During the height of the pandemic a call from our group elicited an overwhelming response with over 26,000 employees helping workers recharge their mobile connections. A corporation can encourage, recognise and reward such initiatives.

Birla also underlined the importance of “the culture of volunteering” in a business organisation. When employees volunteer their time for community service or mentoring youth, they enhance the stature of their employer. He shared that during the height of the pandemic, when migrant workers were experiencing hardship, a call for help within the Aditya Birla group “elicited an overwhelming response with over 26,000 employees of the group helping workers recharge their mobile connections. A corporation can encourage, recognise and reward such initiatives.” Research has shown that employees feel good and energised to work for such corporations and even consumers are willing to value and pay a little extra for products made by companies who follow such desirable practices. “So there is clearly a tangible benefit.”

Quoting the four principles from Rotary’s Four-Way Test, Birla commented: “I find these to be simple but powerful thumb rules to guide the decisions of corporations.” He added that what he was advocating was not “antithetical to creating value and wealth. The leap from goodness to greatness for a corporation is not only the matric of sales and profit. There is an intangible element in good corporate citizenship.”