Posted by: CS Shilpi Thapar
CSR in India is in a very nascent stage. Its essence is yet to be properly understood by the stakeholders. A lack of understanding, inadequately trained personnel, non availability of authentic data and specific information on the kinds of CSR activities, coverage, policy etc. further adds to the reach and effectiveness of CSR programmes. But the situation is changing. And CSR is coming out of the purview of ‘doing social good’ and is fast becoming a ‘business necessity’. The ‘business case’ for CSR is gaining ground and corporate houses are realizing that ‘what is good for workers – their community, health, and environment is also good for the business’.
Companies like Tata Steel (previously Tisco), Tata Motors (previously Telco), the C K Birla group of companies and others of their ilk have been imbibing the case for social good in their operations for decades long before CSR become a popular cause.
In an article published in the Wall Street Journal, R. Venugopal and Nachiket More set out some key principles for CSR in India:
1.It is a sign of bad corporate governance when managers donate to causes that their companies are in no way better positioned to address than individuals are.
2.As trustees of corporate assets, are managers not exceeding their brief when they divert resources in this fashion and pursue personal passions with corporate resources?
3.Would it not be better to distribute profits among the shareholders and employees and leave it to their discretion, as individuals, to contribute to the causes that they deem fit?
4.Again, CSR is sometimes treated as being no different from image building. But such an approach is short-sighted and therefore not good corporate governance.
5. Corporate governance reaches its zenith when companies realize that long term business profitability results from business models that address social problems in a sustainable way.
6. Profits become a-posteriori indicators of business performance rather than as long-term goals; they are viewed as the means to keep companies going concerns and not as ends-in-themselves.
7. An obsessive focus on the competition gives way to innovation that makes competition irrelevant. The history of business tells us that companies such as these are the ones that thrive in the long run. Ironical as it may sound, the most profitable companies are the ones that are the least profit-minded.
The Ministry of Corporate Affairs has issued the Corporate Social Responsibility Voluntary Guidelines. The preamble sets out the background:
“CSR is not philanthropy and CSR activities are purely voluntary- what companies will like to do beyond any statutory requirement or obligation. To provide companies with guidance in dealing with the abovementioned expectations, while working closely within the framework of national aspirations and policies, following Voluntary Guidelines for Corporate Social Responsibility have been developed. While the guidelines have been prepared for the Indian context, enterprises that have a trans-national presence would benefit from using these guidelines for their overseas operations as well. Since the guidelines are voluntary and not prepared in the nature of a prescriptive road-map, they are not intended for regulatory or contractual use.
While it is expected that more and more companies would make sincere efforts to consider compliance with these Guidelines, there may be genuine reasons for some companies in not being able to adopt them completely. In such a case, it is expected that such companies may inform their stakeholders about the guidelines which the companies have not been able to follow either fully or partially. It is hoped that “India Inc.” would respond to these Guidelines with keen interest.
After considering the experience of adoption of these guidelines by Indian Corporate Sector and consideration of relevant feedback and other related issues, the Government may initiate the exercise for review of these Guidelines for further improvement after one year.”
These guidelines cover the core elements of CSR and also provide guidance for their implementation.
In some sense, these guidelines represent a path-breaking step. This step is unique as it represents the first concrete step regulatory standpoint that recognizes the need for observance of CSR as a separate matter. There have been efforts amongst the industry, professional associations and academia to engender a greater sense of social responsibility among companies.
Mandatory CSR requirements in other Countries:
1. Saudi Arabia:
In Saudi Arabia, the Companies are required to pay amounts “equal to 2.5% of income and capital” to the revenue department, which will then distribute the amounts to the needy around the country. Revenues are collected by the Department of Zakat, governmental organization and distributed to needy and poor people across the country. A Zakat payment made of listed companies has to be disclosed and filed with the Capital Market Authority (the Saudi Version of the SEC).
2. United States:
The Conglomerate Blog has reported on recent amendments to the Oregon Corporate Code that requires companies to act in an environmentally and socially responsible manner. It says:
“Oregon recently amended its Corporate Code which expressly permit corporations to include in their charter a provision authorizing or directing the corporation to conduct its business “in a manner that is environmentally and socially responsible.” The legislative history of the amendment notes that courts in other jurisdictions have interpreted corporations’ obligation to act in shareholders’ interest to mean that corporations must maximize shareholder profit, even if it results in a corporate failure to act environmentally and socially responsible. Apparently the amendment is designed to counteract this kind of interpretation, and encourage corporations to engage in sustainable behavior.”
Even the recent Company Law of the People’s Republic of China, enacted in 2005, has a set of obligations on companies that amount to corporate social responsibility. For example, Article 17 states:
“A company shall protect the legal rights and interests of its employees, enter into labor contracts with them according to law, take part in social insurance, improve labor protection and make production safe.
A company shall take various measures to improve the professional education and on-the-job training of its employees so as to enhance their quality.”
To conclude with statement by Niall Fitzgerald, Former CEO and Chairman, Unilever:
“We believe that the leading global companies 2020 will be those that provide goods and services and reach new customers, in ways that address the world’s major challenges-including poverty, climate changes, resource depletion, globalization and demographic shifts.”
Hence, CSR would require a concerted approach with appropriate buy-in from all stakeholders (particularly shareholders) and not a unilateral approach by the controlling shareholder or the management of the company.