Ever since the Industrial Revolution, businesses have often been perceived as an anti-social development – the empowerment of few, against the many. In India, because the industries came in along with colonialism, people's perception of the sector has been adverse. It is a fact that industries and businesses have played a central role in the socio-economic development of the country and today India is counted among the emerging economies. But as poverty continues to be the reality of more than half of our population, what is now known as the corporate sector, has been time and again touted as one of the reasons behind the yawning gap in the distribution of resources in the country. At the same time, its significant role in poverty alleviation in a market driven economy cannot be denied. What does the new Corporate Social Responsibility (CSR) mandate in the Companies Act 2013, imply in this scenario?
The Companies Act 2013, in its Section 135, has made it mandatory for companies (whether private or public) with net worth of ≥ 500 crores or turnover of ≥ 500 crores or net profit of ≥ 5 crores to constitute a CSR Committee of the company board, along with CSR policies and spend 2% of company's net profit (average) earned during the preceding three financial years, towards some social cause. This is just one among the new clauses that have been incorporated in the Companies Act 2013, pertaining to contemporary matters including fraud detection, investor security and corporate governance. Yet this is the clause that has generated much debate. Some have welcomed it as a long awaited development, while sceptics have called it “a waste of resources” among other things. It is important to realize that CSR is not a new concept in India which has been introduced by the Act, rather many companies had already been practising it long before. Then why the CSR mandate? And how does it affect the corporate world?
BENEFITS TO THE CORPORATE
Integrating social, environmental and ethical responsibilities into the governance of businesses ensures their long term success, competitiveness and sustainability. This approach also lays down the affirmation that businesses are an integral part of society and have a critical and active role to play in the sustenance and improvement of healthy ecosystems, in fostering social inclusiveness, and in upholding the essentials of ethical practices and good governance.
Corporate Social Responsibility is the
continuous commitment of a corporate body to improve community
well being through discretionary business practices and ethical
contributions of corporate resources. It advocates the model
of 'trusteeship', which allows businesses to harness the resources
provided to them by society, and therefore, companies are
morally liable to repay the society by manifold. Mallen Baker
- writer, speaker and CSR expert—defines CSR as "a
way companies manage the business processes to produce an
overall positive impact on society."
CSR initiatives become the Unique Selling
Proposition for companies and facilitate them to build a dominant
brand that reverberates with key peripheral stakeholders—customers,
government and general public. In addition to this, CSR helps
in boosting employee morale and building an empathetic corporate
culture within the organization. The feeling of contentment
and pride in corporate bodies comes by itself when CSR initiatives
are implemented and this feeling trickles down to their employees,
as well as in the long run, to their stakeholders.
CSR in India has
traditionally been seen as a philanthropic activity, as a
giving tradition, that was performed but not deliberated.
The initial trend was inclined towards religious giving and
in the second half of the 20th century shifted to institution
building. Businesses established trusts for schools and colleges
and helped in setting up educational, training and scientific
institutions. The tendency of Indian corporate has always
been towards making a one or two-time financial grant, without
any further commitments towards the cause. But over the last
few years, CSR has been taking a whole new shape and purpose.
After the 1990s'
globalization and economic liberalization, the increased growth
momentum of the economy helped Indian companies grow rapidly
and this made them more able and willing to contribute towards
social causes. The practice of CSR in India today centres
on community development, with most companies focusing their
CSR activities in and around the welfare of the local areas
they are based in.
With global influences
and with communities becoming more active and demanding, there
appears to be a discernible trend that CSR is getting more
strategic in nature rather than philanthropic.
But while this practise
had been adopted by some corporate,
the majority was still aloof from the concept of CSR, whether
as a philanthropic activity or strategic policy. Even for
those corporate, who were involved in CSR initiatives, the
proper utilization of funds could not be ensured, due to lack
of a monitoring and evaluating system. This is where the CSR
mandate comes in.
A SUSTAINABLE & INCLUSIVE ECONOMY
The Companies Act 2013 has ensured that CSR no more remains
within the ambit of philanthropy or strategy alone, but in
effect becomes what is meant to be – the responsibility
of corporate towards society. This is an effort towards achieving
sustainable growth of the country, where social development
goes hand in hand with economic progress and the democratic
ideals of equity are realized.
Clear guidelines are also provided by
the Act to demarcate between what counts as a CSR activity
and what does not – working in the areas of poverty,
education, gender equality and women empowerment, healthcare,
livelihood, environment, social business, education, socio-economic
development, etc. would be included, while one-off events
like marathons, awards, charitable contribution, advertisement,
sponsorships of TV programmes, etc. would not be included.
This leaves no doubt that only those endeavours which will
have an actual, effective and long lasting impact on society
and involve active involvement on the part of the corporate
would be considered as CSR activities. There is also a significant
thrust on local area development under the Act, since industries
are located in India on the basis of research of raw market
availability, transportation costs and crucially, the co-operative
attitude of the local government. Intimate knowledge of the
needs of the local communities would even be beneficial for
To regularize and formalize CSR across
the country and make the whole process transparent, disclosure
of resources utilized under CSR in the company's Annual Report
has also been mandated under Section 135. Consequently, companies
have now begun to include CSR as a core activity, rather than
PARTNERSHIP: A WIN-WIN SITUATION
But while corporate are now better informed and willing to
contribute the requisite material resources and managerial
proficiency for social welfare initiatives, the field of development,
particularly in a country with a socio-cultural diversity
as rich as India, either remains outside their expertise or
does not make economic sense. Section 135 provides a solution
– by sanctioning the collaboration of corporate with
NGOs, for achieving their CSR goals.
Earlier corporate seldom kept partners or NGOs in mind while
planning for CSR initiatives, which resulted in the reduction
of their value and effectiveness. But over the past decades,
NGOs in India have been commendably supplementing the government's
efforts in various fields of social development. Thus, more
and more companies have now started partnering with NGOs to
ensure successful execution of CSR initiatives. Credible NGOs
which have been doing consistent good work can prove to be
the delivery arm for corporate, effectively using their resources
on the ground, in a way that is responsive to the needs of
Corporate Social Responsibility forms
the crucial bridge between businesses and society, and by
making it mandatory, the Companies Act has opened up new support
systems for social development. Around 8,000 companies are
expected to come under the ambit of the CSR Mandate and the
annual funding is expected to be between Rs. 15,000–20,000
crore. This has also paved the way for NGOs to learn from
and utilize the management expertise of the corporate to bring
transparency, efficiency and acceleration in their processes.
Since its very inception and much before
the CSR mandate was conceived of, Smile Foundation has been
following the principles of Good Governance and the corporate
sector has been a natural partner for it, throughout its journey
of bringing change. Smile Foundation's development goals have
always been aligned with the social responsibility of the
corporate to ensure the highest Social Return on Investment
(SROI). Rather than just channelize resources from a corporate,
efforts are made to actively engage the corporate organization,
the brand and its employees in the welfare initiatives of
India has become the first country to
formulate the Corporate Social Responsibility mandate. If
this initiative gains success, it could not only become the
foundation of an ideal economy, but also an imperative step
towards nation building, and soon India would be sharing its
knowledge with other countries.