This article is an attempt by the author to express the dilemma that corporates are facing since the inclusion of a CSR mandate in the Company’s Act. The author goes on to analyze the need for the mandate, should companies begin to look at CSR from a shared value perspective.
Indian companies of various backgrounds, whether large or small, manufacturing or service oriented – have tried engaging with communities and the environment with vastly different points of view. From some who adopt a mere philanthropic approach, to others that participate in strategic philanthropy, to yet others that see such activity as linked to their core business processes. Historically, it has been established that large corporates like the Birlas, Tatas, Modis and other industrial families, have been strongly inclined towards social considerations, much before the term CSR was coined. They have always had the vision of investing in communities as a moral obligation, and it has always helped them in running their businesses.
Similarly, there are smaller companies which are genuine in their efforts to bring about positive change to the communities around which they operate. It is not just because they get a ‘social license to operate’ – rather, they are aware that in order to be successful in their business operations, they need to be working with the communities and people around them. Their work aptly fits into the definition of CSR provided by the World Business Council for Sustainable Development (WBCSD): “Corporate social responsibility is the continuing commitment by business to contribute to economic development while improving the quality of life of workforce and their families as well as community and society at large”
Recent legislation that MCA has brought about in FY 15 mandates companies to spend on CSR. Although the government’s intention is positive, and although the state is receding as the only agency involved in societal welfare, a significant set of industrialists have felt that this move should not have been imposed or made compulsory. Industry leaders voiced that this change acts like a ‘Tax’, whereas the government, which has failed to regulate businesses, root out corruption, or even to collect income tax, could use those potential streams of revenue to fund social programs instead. Some companies have argued on philosophical grounds that CSR spending should be made voluntary, which belies the Finance Ministry’s sentiment that the law will become ineffective without a strong enforcement mechanism.
This is more to do with the trust deficit that has existed in the past between the two and therefore the mandate has been made stricter for companies in each amendments we have seen to the legislation where companies meeting financial criteria of having turnover of Rs 1000 Cr or more or having net worth of Rs. 500 Cr or having net profit for Rs. 5 Cr will have to spend 2% of their average profit of proceeding 3 years on CSR. Several changes since April 2014 on the companies CSR spend has created a lot of confusion.
This is more to do with the trust deficit that has existed in the past between the private and public sectors, which is why the mandate has been made stricter for companies with each passing amendment. Presently, the criteria for CSR (companies have to mandatorily spend 2% of average net profits by 2016) are as follows: having a net worth greater than or equal to 500 INR Cr, a turnover of 1000 INR Cr, or a net profit of 5 INR Cr. Several changes since April 2014 have created a lot of confusion in the private sector, enabling amendments to exacerbate market apprehension instead of providing clarity.
The recent article in Times of India (Mumbai edition dated October 19th 2015) further talks about the operational flexibility which is being brought about where only those companies with budget of Rs. 5 Cr or more are to undertake programmes with measurable outcomes under the Anil Baijal Committee recommendations. The committee has also recommended an increase in the ceiling for CSR administrative expenditure from 5 % to 10%. The committee has suggested that contributions made in kind or services rendered by employees of companies cannot be part of CSR spend. It has suggested an insertion of the omnibus clause so that any activity that serves a public purpose is part of CSR activities.
This might be a sign of relief for some companies who have not been investing in welfare activities, and who had planned initiatives only post 2014 from a short-sighted view of investing in communities and the environment from a CSR mandate perspective.
However as businesses have become transnational in nature the need to invest in CSR is also evolving from a traditional perspective of compassionate capitalism to a shared value perspective of creative capitalism. Indian companies too as they become global are being increasing asked by their investors, customers, shareholders on their initiatives in CSR.
That being said, as businesses become more transnational in nature, the need to invest in CSR is also evolving from a traditional perspective of compassionate capitalism to a shared value perspective of creative capitalism. Even Indian companies, which are becoming global, are being increasingly asked by their investors, customers, and shareholders about their CSR plans and projects
Companies are realizing that if they want to survive they will need to invest in CSR, not just as part of their 2 % of PAT (profit after tax), but also in their core business processes, in order to create value for themselves and for society. In the developed world, companies like Google, Microsoft, Unilever, Shell, Facebook, Ikea, etc. are imbibing the same principles in their core strategic vision, and have begun looking at CSR as a facet that gives them competitive advantage.
In India too, a mid-sized company like Tata Business Support Services (TBSS) has developed a sustainable strategy of progressively increasing the representation of disadvantaged communities in its workforce. This has made many of its non-metropolitan centres, with a high proportion of disadvantaged communities in the workforce, into profitable business centres, through rigorous training. This initiative is aligned to the Tata group’s Affirmative Action Policy to address the challenges of creating an inclusive society. There are other large corporate houses like the Mahindra’s with their strategic initiatives like ‘Rise of Good’, on the basis of which they have built some of their businesses like Mahindra Rural Housing Finance.
Therefore, the state needs to realize that as long as a shared value is created, businesses will invest in CSR initiatives. It is imperative for bodies like the Indian Institute of Corporate Affairs (IICA) and the Chambers of Commerce ( CII and FICCI) to look at CSR with a larger vision of sensitizing companies through a sustained campaign, rather than foisting it upon companies and forcing them to showcase the funds spent, without having a structured approach to an impact-based programme. It is important to explain to corporates the need to look at CSR from a survival and sustainability perspective.
From a state’s perspective, the Govt of India has taken commendable large-scale initiatives like Digital India, Skill India, Clean India etc. If companies can find a case for business, then they will invest – in that case, the CSR initiatives will not be a compulsion for them, it will be beyond personal gain and an exercise in nation building.
The need of the hour is to give all corporates that are confused or are struggling to define CSR using a structured approach a direction to align with government initiatives, which can be linked to their core business expertise. Associations like the NASSCOM Foundation, the not-for-profit arm of the parent IT company NASSCOM, is suggesting to invest in Digital India and Make in India campaigns to its members. The foundation has partnered with large iNGOs such as Bill and Melinda Gates foundation to create digital libraries.
To elaborate on an example, for companies that provide manpower for housekeeping, the management could look at skilling a large number of people at a lower cost for cleaning public toilets, in a possible partnership with another company which manufactures cleaning supplements. Since this skill does not require high-end qualifications, the company may look at investing in school drop-outs and work towards making cleaning look respectable. This act simultaneously ensures cleanliness while providing skills to a large number of people, thus contributing to both Clean India and Skill India initiatives.
For developments like this, however, the foremost requirement is that the state should trust private players and include creating shared-value projects as part of the CSR bill, and not see them in isolation. Companies need to have a robust plan for choosing their CSR positioning. Once the value of such investments is realized, the entire premise of making it mandated will become redundant.
About the Author : A development sector professional working in the field of CSR and Sustainability with over 11 years of work experience. Initially involved in establishing CSR projects for companies has moved, over the years, her work to ensure that CSR is in line with the business objectives so that there is a shared value created.
The views expressed here are personal in nature and not representative of the organisation for which author works
