CSR: Define What and Not How Much!
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Since time immemorial Indian businesses have been generously giving back to the society for the latter’s social and economic uplift by building educational institutions, taking care of the less privileged and contributing generously in times of the nation’s need. Some might not agree with this concept and argue that taking care of social issues is the job of the government and not of the corporate houses. However, economic liberalisation has lifted government control on business and, in turn, busi-ness has honoured its commitment to economic growth. However, the irony is that the government has failed to deliver equitably and inclusively in the social sector. Hence, through CSR, companies walk shoulder to shoulder with the government towards this ultimate goal to attain sustainable development. It is a dynamic business process that has the potential to answer the concerns and aspirations of various stakeholders.
CSR: What Exactly Does It Stand For?
In the last decade or so, corporate social responsibility has become a new buzz word for India Inc. The term came into common usage in the late 1960s and early 1970s when a large number of multinational corporations were formed. However, what exactly is CSR? If a company builds a school in a remote area close to its manufacturing facility, is this CSR or a strategic move? McDonald’s coming up with fat-free burgers: is this CSR or is it purely a business move to boost sales? The fact that there is no single, commonly accepted definition of CSR makes the matter more complicated.A FICCI official states that there is a general belief that CSR is about how businesses align their values and behaviour with the expectations and needs of the stakeholders – not just customers and investors, but also employees, suppliers, communities, regulators, special interest groups and the society at large. Key CSR issues include governance, environmental management, stake-holder engagement, labour standards, employee and community relations, social equity, responsible sourcing and human rights. Companies view CSR not just as a bunch of discrete practices, occasional gestures or initiatives moti-vated by marketing, public relations or other business benefits, but rather as a comprehensive set of policies, practices and programmes integrated throughout their business operations and decision-making processes.
Government Parameters
The Ministry of Corporate Affairs has also made efforts to define CSR. It has given certain guidelines to ensure that the benefits of such acts percolate in the right direction. Some of the policies laid down by the ministry include: Core Elements
1. The companies should respect the interests of and be responsive towards all stakeholders, including shareholders, employees, customers, suppliers, project-affected people, the society at large, etc, and create value for all of them.
2. Their governance systems should be underpinned by ethics, trans-parency and accountability. They should not engage in business prac-tices that are abusive, unfair, cor-rupt or anti-competitive. Besides, a safe, hygienic and humane work-place environment should be pro-vided so as to uphold the dignity of employees.
3. Companies should respect human rights for all and avoid complicity in human rights abuse by them or by a third party.
4. Companies should take measures to check and prevent pollution; recycle, manage and reduce waste; should manage natural resources in a sustainable manner and ensure optimal use of resources like land and water; should proactively respond to the challenges of climate change by adopting cleaner produc-tion methods, promoting efficient use of energy and environment-friendly technologies.[PAGE BREAK]
5. Depending upon their core compe-tency and business interest, compa-nies should undertake activities for economic and social development of communities and geographical areas, particularly in the vicinity of their operations.
Various Approaches to CSR
Keeping funds aside is only the first step towards CSR. After that, a lot of efforts are required to ensure that the benefits reach the needy on time. Going forward, there are basically four approaches to CSR as follows:
1. One of the approaches towards CSR is the community-based develop-ment approach. Under this, compa-nies work with local communities to better them. Here, instead of donating money, companies chalk out plans and allocate resources for the overall development of the community. Companies like Reliance and Hero Honda adopt villages near their production sites and build schools, hospitals and public centres in the vicinity.
2. Another approach is philanthropy, which stands for the love of human-ity. It clearly suggests that corporate houses must generate and donate funds to various organisations so that the latter can carry out social work. One of the examples is Teach For India, which works towards educating the children of indigent people. The organisation gets huge monetary support from corporate houses like Godrej.
3. Another approach is to incorporate CSR directly into the business strat-egy of an organisation. Let’s take the case of Mahindra and Mahindra, which recently announced the launch of its hybrid car. Besides being an economical pros-pect for the potential consumer, the car would also contribute towards the cause of sustainable environment.
4. Another approach is garnering increasing corporate responsibil-ity interest. This is called ‘creating shared value’ (CSV). The shared value model is based on the idea that corporate success and social welfare are interdependent. A busi-ness needs a healthy, educated workforce, sustainable resources and adept government to compete effectively. On the other hand, for the society to thrive, profitable and competitive businesses must be developed and supported to create income, wealth, tax revenues and opportunities for philanthropy.
How Effective?
Having said that, it is necessary to analyse the effectiveness of different CSR activities. It is indeed important to see if it really serves the community or is just a tool for brand-building. Many corporate houses are actively involved in serving the communities. One of them is Bharti Enterprises, which set up the Bharti Foundation in 2000 as its philanthropic wing. All educational programmes initiated by the Bharti Foundation involve close partnership with the government, pol-icy-makers, local communities and the general public.
Another organisation is the Hero Honda Group, which has construct-ed an Integrated Rural Development Centre on 40 acres of land along the Delhi-Jaipur highway. The Centre, complete with wide approach roads, clean water and educational facilities for both adults and children, nurtures a vibrant, educated and healthy com-munity.
Similarly, 25 per cent of the shares of the Godrej Group’s holding com-pany, Godrej & Boyce, are held in a trust that invests back in environ-ment, healthcare and education. Philanthropy became in integral part of Godrej’s corporate policy back in 1920, when Ardeshir Godrej made a handsome donation of Rs 300000 to the Tilak Swaraj Fund for the uplift of the downtrodden. From then onwards, the group has been investing huge sums of money in building schools, hospitals and public centres.[PAGE BREAK]
Forced CSR: Is This Really An Intelligent Move?
The Ministry of Corporate Affairs has recently announced that compa-nies will have to earmark two per cent of their average net profits during the preceding three years for CSR spend-ing and disclose to their shareholders if they fail to do so. The proposal, part of the Companies Bill 2009, was to be tabled in the budget session. However, it drew heavy criticism from India Inc.“The social spending should be self willed, which could lead not only increasing investment in social sector but greater participation of the private sector in terms of technology and skills. Instead of bringing in new rules, what is more important is creating aware-ness. The industry is divided on this issue but everyone agrees that this is a requirement rather than a responsibili-ty. Any mandated move will ultimately be pushed as a part of the cost. We feel it is likely to be a voluntary move with only tag to empower how the money is spent,” says Jyotirmoy Mukherjee, Adviser and Head, Banking & Finance Division, ASSOCHAM.
Rahul Bajaj, Chairman, Bajaj Auto Limited, also criticises the policy. According to him, since corporate houses were already engaged in various CSR initiatives, there was no case for making it mandatory. “I have spoken to Murli Deora (corporate affairs min-ister) on the issue. Since CSR spending is a question of conscience, there is no case for making it mandatory,” he said.
The need of the hour is to facilitate companies in internalising CSR, creat-ing a platform for businesses to share and learn about CSR and acknowledge CSR best practices. Also required is a dedicated department to leverage the holistic concept of CSR based on the ‘three Ps’ (people, planet and profit), which should propose volun-tary guidelines as an appeal to the industry, for use as a reference point in strategising and planning their CSR initiatives, leading to the greater good of the society and sustainability of business.If this two per cent becomes manda-tory, it may take us back to the ‘Licence Raj’, leading to greater corruption. The government can propose guide-lines on CSR and act as a facilitator while helping in setting standards and acknowledging the best practices. Since there has been no acceptable definition of CSR, the move is not in the right direction. Besides, there has to be a legal basis for implementing such a move. Let the proposal be voluntary, otherwise companies can misuse it by finding a way around the law. Last but definitely not the least, the government should first define CSR in clear terms. It should lay down policies to catego-rise all the philanthropic efforts of the corporate houses. Unless and until it does that, chaos will prevail as to where this two per cent should go.