C Gopinath

More to CSR than doling out cheques

C. GOPINATH | Updated on March 12, 2018 Published on October 13, 2013

ITC’s e-Choupal initiative has helped farming communities in a big way. - Photo : Rasheeda Bhagat

CSR is not about making profits; it’s just the right thing to do.

The new Companies Bill has both given a boost to corporate social responsibility (CSR) and broadened its scope. Yet, some of what it would allow can make us wonder if this is really CSR.

Traditionally, arguments in favour of CSR have come from the stakeholders’ perspective. This takes the view that the organisation is answerable not just to its stockholders but to all its stakeholders as well, which includes the community, vendors and customers.

Naming the motives

Scholars often debate the motives that drive CSR. One extreme view is that it is an oxymoron — that companies only have a responsibility to their shareholders and not to vague notions of doing good to society. Although this view is diminishing, those who recommend CSR try to find ways to justify the actions.

The motives for adoption of CSR could be both economic and moral. The economic argument is presented to mollify those who see CSR activities as beyond the scope of an enterprise. Arguing that undertaking CSR can still provide economic benefits to the organisation may give some business legitimacy. On the other hand, the moral justifications for CSR also rest on the symbolic nature of the activity.

The argument here would be that the corporation is a member of society and needs to behave in a responsible manner like any citizen, and there is no point in even trying to calculate the benefit to the company, since this is just the right thing to do.

The motives that drive a firm involved in CSR seriously affect its implementation. A firm that does so with economic motives will be driven to those aspects of CSR that can be clearly measured and provide immediate results. When the motive is symbolic, the firm may be driven to activities that get it good media coverage, but do not necessarily make the most significant impact.

One ‘market’ mechanism that has pushed many companies towards CSR has been the ISO 9001 standard. Having the certification improves a company’s legitimacy in the marketplace, prevents consumer abuses and even deals with the health and safety of employees. It safeguards the public from the company making misleading advertising claims, and unreliable products. Thus, rather than promote CSR as a cheque-writing activity, that is, the company making a donation to some non-profit organisation, the standard ensures the company conducts its activities in a socially responsible manner.

The UN’s Global Compact tries to achieve the same. Since these are process- and not performance-based standards or guidelines, they help transform the organisation, but still leave open the question of measuring how it benefits the organisation.

Several organisations, such as those in the Tata Group, have built a reputation for social responsibility, derived from the vision of their founding rather than economic or competitive justification. On the other hand, we find even organisations such as ITC, whose social responsibility credentials while being in the tobacco business can be questioned, have yet undertaken innovative business activities like the e-Choupal which, while being a hard-nosed business venture, has impacted farming communities in a positive way.

Meaningful CSR

Unlike in the Tata case, where we can give credit to history and tradition, the ITC case brings to our attention what scholars would call the role of managerial autonomy. With little external pressure, salaried employees of the organisation, at some time, have entered an area of activity that combines good business with positive social impact.

One definition of CSR is that these are practices that further some social good; they are beyond the interests of the firm, and they are not required by law. That changes in India with the Companies Bill requiring some firms to spend 2 per cent of their three-year average annual profit towards CSR activities. By making it a requirement, efforts to justify CSR now have to take on the shades of compliance instead.

Given the criteria of networth, profit and turnover, it is estimated that the law applies to only about 1 per cent of active companies in the country. Although spending is not mandatory, reporting is. By requiring a board-level CSR committee, the law is trying to gently push companies in the direction of making CSR impact strategic thinking within the company rather than another law that has to be satisfied. Thus, again, it is along the lines similar to the Global Compact.

But the Bill has also raised the question of what CSR is. In a recent interview I read, Corporate Affairs Minister Sachin Pilot commented that investment in skills upgrading by companies would be counted as CSR spending. I would argue that it should not, and doing so will only dilute the meaning of CSR.

A company pays attention to the skills of its personnel from a purely selfish perspective, namely, to derive competitive advantage. These are a part of its efforts to maintain the desired performance. It has little to do with responsibility to society. If companies can claim that their expenditure on training programmes for executives are a part of CSR, it completely negates the spirit behind CSR.

(The author is professor and dean of the Jindal Global Business School. Sonepat, Haryana.)

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Published on October 13, 2013
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