CSR, a winning proposition

Mahatma Gandhi had stated in 1931, at FICCI’s fourth Annual General Meeting: “Industry should consider themselves as trustee and servants of the poor”.

This proposition holds true to this day. Gandhiji was reflecting on the role of business in society and flagging a compassion that Indian society has traditionally shown.

Indian business has a rich history of philanthropy and organisations such as FICCI have long adhered to the spirit of promoting responsible businesses.

Today, it has become mandatory so businesses have to identify ways to integrate corporate social responsibility into their business strategies and strengthen the delivery mechanisms to make a genuine social impact, while continuing to ensure their own profitability and sustainability. That’s the challenge.

Though philanthropy is an age-old concept, the term ‘corporate social responsibility’ began to emerge in the 1980s, thereby enlarging the responsibility of business and shifting the focus from just “stockholders” to “stakeholders”.

In the last 20 years, a large percentage of British and American companies have been at the forefront of CSR activities to demonstrate themselves as socially responsible corporate citizens.

Both Japan and South Korea have had a long tradition of CSR, while emerging markets such as Brazil have witnessed an active CSR movement in recent times.

NURTURING CSR SPIRIT

Even in China, there is an increasing realisation among corporates to be seen as socially responsible.

In India, the culture of philanthropy, especially among big, family-owned businesses, has found reflection in their active promotion of education, healthcare and basic services for communities.

With the recent passage of the Companies Bill, which stipulates a spend of 2 per cent of net profits towards CSR, corporate social responsibility will join the core business operations of companies.

India is perhaps one of the first countries in the world to have mandated this, and it paves the way for the corporate sector to play a big role in shaping communities and improving the national economy.

In several countries, including Sweden, Norway, the Netherlands, Denmark, France, and Australia, it is not legally mandatory to carry out CSR activities, though there are mandatory CSR reporting requirements. With the inclusion of CSR as provided in the new companies legislation in India, there is a lot that the corporate sector can do to contribute to employment, health, education and poverty eradication.

The spirit behind the provision is well meant and can be of immense benefit to the society; however, implementation could be a challenge. The recently legislated CSR provision, being a new concept, needs to evolve over time.

Though many large Indian companies have been engaged in doing meaningful work for society, this spirit cannot be mechanically enforced; it needs to be cultivated and nurtured over time.

To make such a movement sustainable, it is important to flag the concept of ‘Shared Value’.

This dwells on the connection between societal and economic progress as one of the ways in which businesses have been working towards enhancing welfare for society, while doing business as usual.

This concept was initially developed by Michael E. Porter and Mark R. Kramer, in a December 2006 Harvard Business Review article, “Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility.”

An increasing number of companies such as Nestle, Johnson & Johnson, or closer home, ITC, have already begun to successfully embark on important shared value initiatives.

Companies all over the world are increasingly making this concept an integral part of their strategy. Creating shared value helps contribute to society while promoting business.

BROADER SPIN-OFFS

The benefits arising out of this integration are manifold. It enhances the competitiveness of a company, while simultaneously advancing economic and social well-being in communities, therefore increasing the long term sustainability of the company.

It also enhances the possibility of co-operation between business, society and government.

While the new Act defines the broad contours of CSR provision, the final Rules or subordinate legislation will carry the finer details. The government has been receptive to the legitimate concerns of India Inc and redressal of some practical hardships will provide the corporate sector with a more conducive environment to do business and help adapt to the new requirements.

Industry views with optimism the assurance by the Minister of Corporate Affairs that all steps will be taken to ensure that CSR expenditure is not construed as a tax on business, and hopes that the CSR spend would be fully tax-deductible.

This is all the more because expenditure on CSR would become an integral cost of doing business for companies in the future.

It is also widely felt that the large operating subsidiaries within a Group may lack the organisational capabilities to undertake CSR on their own.

Therefore, group-level CSR spending based on consolidated accounts could be permitted, instead of CSR spending at the level of individual entities.

Furthermore, the Rules could clarify that CSR expenditure incurred by companies in keeping with conditions, stipulations and orders of Government departments, such as the Ministry of Environment and Forests, would count towards CSR spend.

Value creation should not be viewed in a narrow sense, as simply a means of optimising short-term financial gains.

Corporate social responsibility in the form of shared value creation is the key to establishing a symbiotic linkage between corporations and the communities and in taking forward the India growth story.

But for that, CSR should be embedded in the corporate culture, which, in turn, requires inspiration from the leadership and commitment across the organisation.

The author is Secretary General, FICCI.

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