CSR, a great idea

B usiness cannot succeed in societies that fail. — Bjorn Stigson, World Business Council on Sustainable Development

The article ‘A Flaw in the CSR design’ (June 19) raised some questions on the principles and viability of the corporate social responsibility (CSR) requirements mandated by the new Companies Act 2013.

Though the term CSR was coined by Harvard economist Howard Bowen in 1953 in his book Social Responsibility of Businessmen , the idea of improving the living standards and welfare of not only the workforce but also the local community and society at large, was practised by various business houses in India before the first Companies Act came into existence in 1956.

With increased integration of world capital and improvement in communications, ethics has become all the more integral to corporate behaviour.

The EU recently defined CSR as “the concept that an enterprise is accountable for its impact on all relevant stakeholders” by continuing its commitments to behave fairly, transparently and therefore sustainably — highlighting the triple bottom line approach.

India became the first country to statutorily provide for CSR through its new Companies Act 2013 by inserting clauses on compliance, enforcement, conformity, disclosure and auditing.

The provisions explicitly state that companies with a revenue of ₹1,000 crore and more or those with a profit of ₹5 crore and more or a net worth of ₹500 crore or more are required to spend a minimum of 2 per cent of their net profits over the preceding three years on any field ranging from rural development, women empowerment, promotion of arts, relief and infrastructure building.

Companies are required to constitute a committee to monitor activities and this has to be included in the annual reports, failure of which would invite penal provisions.

One-time events, salaries to CSR staff and expenses incurred would not be accounted as CSR activities. As the ministry of corporate affairs clarified recently, the provisions have to be interpreted liberally to fulfil the spirit in which they were made.

Contrary to what the June 19 article observes, the responsibility of a corporation to contribute to local development differs fundamentally with the nature and scope of activities of a welfare state. Involving public organisations would be an effective way to provide services, especially in India where massive development work is required to reach acceptable living standards.

This would serve as an additional force to expand work and rebuild brand, image and goodwill of a company.

The thrust on local area development is natural, 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 locality would even be beneficial. Hence, localisation of CSR is a workable idea.

Rather than attracting more investment to an already developed district, this provision would encourage the government to allot spaces in diverse locations, taking development concerns into account. These would be long term projects, spanning decades.

To conclude, the rationale for the Act is to adjust the companies’ perception of themselves as agents of change by internalising inclusion and strong distributional values.

The writer is a PhD candidate at the Indian Institute of Capital Markets, Navi Mumbai

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