Corporate social responsibility (CSR):
As the analysis of CSR is still at its nascent stage, theoretical frameworks have not yet been resolved (McWilliams, 2006). In general, CSR describes the medium through which businesses can rise to the challenge of sustainable development. CSR is a multi-dimensional concept surrounded by a wide range of business practices and activities that go beyond the operations of a business or a firm. It has differing views mainly due to conflicting goals and objectives which arises as a result of pressure from stakeholders of the firm. (Levitt, 1958) Set the stage for a debate on CSR when he posited that businesses should be concerned with profit maximization, not social responsibility. (Friedman, 1970) Echoed this view, pointing out that based on agency theory, CSR would be a misuse of resources which could be better ploughed back into the business or to shareholders. From that time, the contemporary perspectives have taken over a more positive view of CSR.
The stakeholder theory proposed by, inter alia, (Freeman, 1984) and Donaldson and Preston (1995), suggests that managers should strive to satisfy not only stockholders, but also non-financial stakeholders. The stewardship theory advocated by Donaldson and Davis (1991) states the fact that managers are obliged to ‘do the right thing’ regardless of financial implications. Many questions still exist in the study of CSR due to, inter alia, institutional differences across countries and cultures differences in terms of different expectations in the way market activities are regulated (McWilliams, 2006). (Garriga, 2004) Asserted that any theory on the relationship between business and society should consist of dimensions related to long term wealth creation, responsible political performance, consideration of social demands and the advocacy of ethical values.
The recent increased interest in CSR has given rise to a host of empirical studies which focused on the relationship between CSR and financial performance. The results resulted regarding these studies are inconsistent and are ranging from negative relationships between CSR and firm performance, to no relation, to positive relationships. This may be due to definitional issues with CSR as well as different ways in which firm performance is defined (McWilliams, 2006). Other than the empirical studies, the interest in CSR issues and socially responsible investing in recent years led to a proliferation in agencies which attempt to assess and rate corporations in terms of the CSR levels practiced (Marquez, 2005). There were attempts to construct share indices that rate corporations according to their performance towards the broader goal of sustainability, with the more long-standing tradition existing in the U.S. where the Dow Jones Sustainability Index (DJSI), launched in 1999, has emerged to be the leading index in this respect. The listing of companies in CSR index has been proposed to enhance corporate reputation, which is a valuable factor in determining an organization’s success (Brown, 2000).
In the highly regulated environment of the pharmaceutical industry, CSR issues may be related to ethical, legal as well as compliance-related matters. Prior research has pointed out various CSR issues affecting the pharmaceutical industry, such as pressures to relinquish intellectual property rights and reduce prices in respect of HIV/AIDS medication, to correspond with the low purchasing power of patients living in poverty (De George, 2005); (Leisinger, 2005); (Werhane, 2005) and calls to redistribute resources to conduct more research on tropical diseases (Leisinger, 2005). Evidence from the pharmaceutical sector has also been used in studies involving the assessment of corporate policies relating to business sustainability. For instance, (Kuk, 2005) selected companies from the pharmaceutical industry, amongst other industries, for a representative sample to evaluate corporate environmental policy reporting practices amongst firms noting that the pharmaceutical sector has an established standing for its attention to environmental issues surrounding business. In investigating the practice of CSR within the pharmaceutical industry, a comparison between the U.K. and U.S. may reveal interesting revelations as recent research has shown that differences exist between investor’s perspectives towards CSR in the U.S. and the U.K.
Other factors contributing to the growth of CSR awareness amongst investors included increased awareness of risk and risk management, the growth in media coverage of social, ethical or environmental issues, and a general increase in the consciousness of ethical and moral issues in British society (Solomon, 2004). Approximately 80% of stocks being owned by institutional investors in 2003 (Mallin, 2005), and the proportion of institutional investors was approaching 60% towards the end of 2002 (Binay, 2005) While institutional investors feature prominently in the landscapes of both countries equity markets, differences in governance systems as well as the composition of institutional investors between each country have given rise to differences in outlook, particularly in the way CSR is perceived (Aguilera, 2006). Institutional investors in many countries mainly consist of insurance companies and pension funds (Mallin, 2005) which take a long-term perspective of their investments and traditionally adopt a behind-the-scenes consultative approach with the management of their portfolio companies (Aguilera, 2006). However, the bulk of institutional investors are mutual funds which may have a comparatively shorter time horizon; hence the difference in the outlook of institutional investors between the two countries. Long-term investors are more likely to incorporate the importance of socially responsible behavior by companies into their investment decisions.
In this respect, the area of pharmaceutical product recalls provides a good context within which the willingness of companies in the pharmaceutical sector to perform socially responsible acts could be assessed. In addressing public accountability, pharmaceutical firms have legal responsibilities to test drugs and medicines before releasing them to consumers using testing criteria imposed by the relevant authorities. Bearing in mind that most pharmaceutical product recalls are conducted on a voluntary basis, socially responsible behavior by pharmaceutical companies would mean that companies affected by product defects should take the initiative to voluntarily monitor and be accountable for product defects rather than relying on the government to mandate recalls.
Strategic CSR through healthcare:
Many pharmaceutical companies all over the world spend some amount from their budget towards the CSR activities. Mainly in India, it is important and most of the budget goes towards to the CSR as India is the major exporter of pharmaceutical products and healthcare products. According to (Susanta Dutta, 2017), most of the pharma companies in India have spent almost 30-70% of their budget towards CSR.
CSR practices in India:
In India, CSR is taken as an obligation for private and public-sector enterprises. According to the CSR policy rules and companies Act 2013, every company which has a net worth of rupees 500 crore or a turnover of rupees 1000 crores or a net profit of rupees 5 crores should spend 2% of its profit towards CSR activities. The CSR activities should be mentioned in the format below according to the 2013 Act.