This is a Guest Post by Eshan Bhardwaj which discusses on Triumphs and Failures of Corporate Social Responsibility in India.

Introduction

“What corporations do to society is far more important than what corporations can do for society”   -Peter Druker

Corporate Social Responsibility(CSR) is how companies manage their affairs to produce an overall positive impact on the society. It covers sustainability, social impact and ethics about core business – how companies make their money – not just add-on extras such as philanthropy.

The Concept of Corporate Social Responsibility for firms and businesses has undergone a radical change since its early days and has evolved from a mere slogan to the present day situation where it is considered no longer a fashion but as the part and parcel of a company’s functioning to be socially responsible.[1]

Companies need to answer two aspects of their operations.

1. The quality of their management – both in terms of people and processes (the inner circle).
2. The nature of and quantity of their impact on society in the various areas.[2]

The reason that the firms should put their heart and soul while carrying out CSR activities is that humanity finds itself in the second decade of the 21st century and taking into considerations of all the political, economic, social, and environmental problems that the humans are facing, corporations have a serious responsibility of playing their role in contributing to the well-being of mankind and society.

CSR has become an integral part of a company’s functioning and today it has become indispensable that a firm demonstrates such responsibility. Although, earlier it was not a legal compulsion that had to be walked through by any firm, but following it was considered as a good practice for taking into account social and environmental issues.

In recent times, Corporate Social Responsibility has been considered vital for the success of any firm. The 2015 Cone Communications/Ebiquity Global CSR study found that a staggering 91% of global consumers expect businesses to operate responsibly to address social and environmental issues. Furthermore, 84% say they seek out responsible products wherever possible. Above stats show that the consumer is getting more aware of the CSR with each passing day and they tend to buy products only from those businesses that follow ethical rules. Since, CSR depicts that a corporate follows ethics and thus cares about the society, rather than just minting profits. This helps in attracting customers who share the same values and interests[3].

Following a sustainable and ethical approach provides a corporate with scores of benefits[4] and among them, the most prominent one is increased customer engagement. Customers are considered as the part and parcel of a business, so when a business involve itself in the well-being of a society and environment, it creates a buzz among the customers and they get attracted towards the policies of that particular business. Further, a huge and a faithful consumer base helps the businesses in getting a competitive advantage over their peers and makes them stand out as the favourite[5]. A socially responsible behaviour from the businesses brings professionalism and dedication to the table for employees. Working for the benefit of society brings a feeling of pride and contentment in the minds of the employees. This results in employees being more effective and efficient towards their duties[6]. Also, when a corporate works for the betterment of the society, they tend to avoid situations that cause a detrimental effect on the goals of the company. A positive and altruistic approach towards the society helps the firms in building an indelible imprint on the mind of their customers and this approach provides the firm with an upper hand over their competitors[7].

Companies Act 2013

Seeing the importance of CSR, the new companies law, enacted on 29th Aug. 2013 has introduced various new provisions. Among those, one is CSR i.e. Corporate Social Responsibility. Sec. 135[8] of the Act provides obligation for every company having the net worth of rupees five hundred crores or more, or turnover of rupees one thousand crores or more, or net profit of rupees five crores or more during any financial year shall constitute a Corporate Social Responsibility committee. As per the provision, the companies covered under it shall spend at least two per cent of its average net profits made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.

There are various activities that have been provided in the Act, that the companies can undertake in lieu of Corporate Social Responsibility.

Activities for CSR Expenditure

Schedule VII mandates expenditure for the following activity-

1. Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water,
2. Promoting education, including special education and employment enhancing vocational skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects.
3. Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, daycare centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward.
4. Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining the quality of soil, air and water.
5. Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts.
6. Measures for the benefit of armed forces veterans, war widows and their dependents.
7. Training to promote rural sports, nationally recognised sports, Para-Olympic sports and Olympic sports.
8. Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women.
9. Contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government.
10. Rural development projects.
11. Slum Area Development[9]

Composition of CSR Committee

Type of Company	Composition
Listed	–Three or more Director, including at least one Independent Director.
Unlisted & Private	–Three or more Director, Independent Director is mandatorily required to be appointed.

Historical Developments

Corporate Social Responsibility is not the norm or boon of the present day society. It was ubiquitous during early ages also.

The Four Phases of CSR Development in India[10]

The evolution of the CSR activities can be credited to the myriad problems that the firms face in their day to day functioning, accompanied by a realisation of the effects of their activities on the environment and further realizing that profits should not be the sole aim of a company’s existence.

The history of CSR in India can be divided into four phases which run parallel to India’s historical development and has resulted in different approaches towards CSR. However, the phases are not inert and the features of each phase may overlay other phases. In the first phase, charity and philanthropy were the main drivers of CSR. In this phase, the wealthy merchants used to share their wealth with the wider society and also used to help them in getting over with dark phases of famine and epidemics by providing them with the necessary grains from their warehouses. During the independence movement (Second Phase) Indian industrialists were under a great stress to depict their dedication towards the society. It was during this time only when Mahatma Gandhi introduced the concept of trusteeship. According to Gandhi, Indian companies were supposed to be the “temples of modern India” and thus motivated the industry leaders to manage their wealth in such a manner so as to benefit the society.

The third phase of CSR (1960–80) was related to the element of “mixed economy”, the emergence of Public Sector Undertakings (PSUs) and laws relating to labour and environmental standards. This period was described as an era of command and control as the private sector was surrounded by many stringent rules and regulations due to which the private sector was forced to take a back seat and public sector was considered as a driver of development[11]. In the fourth phase (1980 – 2013) Indian companies started abandoning their traditional engagement with CSR and started integrating it into a sustainable business strategy. In the 1990s, the first step was made towards globalization and liberalization. In order to give a boost to the economy, several controls and licencing rules were relaxed which resulted in an increase in the growth momentum and helped Indian companies to grow rapidly[12].

CSR: Present Scenario [13]

CSR is not a concept of the present day society but has been present in India since the antediluvian times as corporates like the Tata Group, the Aditya Birla Group and Indian Oil Corporation, to name a few, have been involved in serving the community from the inception.

Nowadays the main objective of companies is to maximize their impact on the society and stakeholders and in order to achieve their objective, many corporates indulge in various social events such as donations and charity events. CSR activities have become so embedded in a corporate’s life that they no longer consider it as an indirect expense and treat it as a route for improving their goodwill, reputation, defending attacks and increasing business competitiveness.

So, in order to give shape to their strategies, many corporates have specialized CSR teams that formulate policies, strategies, and goals for their CSR programs and set aside budgets to fund them. The policies developed by the assigned teams are always made keeping in mind the main goal of business.

For example, a more comprehensive method of development is adopted by some corporations such as Bharat Petroleum Corporation Limited, Maruti Suzuki India Limited, and Hindustan Unilever Limited. Provision of improved medical and sanitation facilities, building schools and houses, and empowering the villagers and in the process making them more self-reliant by providing vocational training and a knowledge of business operations are the facilities that these corporations focus on.

Companies with Good CSR [14]

Corporate Conscience is all about returning the favour to the society that keeps the business on the move, maybe even when the same is beyond the reach of the company. Having such a culture in the company helps the employees to know, that there is something bigger than themselves for which they are burning the midnight oil; their business is not one dimensional and most importantly it cares about the people. Companies, nowadays are encouraging their employees to break a sweat for the society also and thus try to amplify the intentions of the employees and the mission of the company.

Examples of Companies fulfilling the CSR [15]

The Tata Group conglomerate in India carries out various CSR projects, which are mostly aimed at the upliftment of the poor strata of the society. It also engages itself in the women empowerment activities, income generation, rural community development, and other social welfare programs. Apart from this, the company also engages itself in the field of education i.e. by providing scholarships to various students and institutions and healthcare services such as facilitation of child education, immunization and creation of awareness of AIDS.

Ultratech Cement, India’s biggest cement company also plays its part in social activities by carrying out philanthropic activities across 407 villages in the country. Their main focus is on health care and family welfare programs, education, infrastructure, environment, social welfare, and sustainable livelihood.

Indian automobile manufacturer Mahindra & Mahindra (M&M) strives for the promotion of education. The company focuses on assisting various economically backward sections of the society in the field of education and further provides investment in scholarships and grants livelihood training, healthcare for remote areas, water conservation, and disaster relief programs.

ITC Group, a conglomerate with business interests across hotels, FMCG, agriculture, IT, and packaging sectors has been focusing on creating sustainable livelihood and environmental protection programs. With its charitable approach, they have been able to provide sustainable livelihood opportunities for six million people. Their e-Choupal program has been a great initiative as it aims at providing internet connection to rural farmers.

BMW[16] takes pride in considering itself as one of the most socially responsible in its industry. They set a new high when they decided on helping 1 million people by 2020. Alignment has always been their key to success. They put a great example of themselves by showing that they have maintained a great balance between a good business model and helping social causes.

Thus, above mentioned are some of the companies that are abiding by the provisions relating to CSR under Companies Act, 2013 but it is also seen that CSR has not achieved its objectives in toto and have also proved to be a failure

CSR: A Failure

Mandating CSR for businesses will not do any good unless there are proper mechanisms for its enforcement. One of the main hindrances that stand in the way of effective CSR enforcement is finding credible projects that the corporates can support. According to Guardian, bigger charities are being flooded with money, while the smaller charities have to seek their way for finding of funds due to which they lack the resources and capacity to cope up with the company’s bureaucratic and operational demands[17].

According to KPMG Report, geographic bias with respect to the company’s funding of CSR activities is also prevalent, as firms tend to fund those projects that are closer to where they are based. This results in industrialized areas getting preference over the poorer and underdeveloped areas that are truly in need of some development and aid.

Fear that the companies would find their way to avoid shelling out money for CSR activities has appeared to be well founded. A survey by accountancy firm KPMG found that 52 of the country’s largest 100 companies failed to spend the required 2% last year. A smaller proportion has gone further, according to an Economic Times investigation, allegedly cheating the system by giving donations to charitable foundations that then return the monies minus a commission. The main problem with the CSR is the reported expenditure on the projects. Most firms don’t mention the exact amount of expenditure spent by them on the CSR activities. Due to this, it becomes very problematic for the government to comprehend the exact amount of funds spent by the firms in this relationship because there is evidence showing that the firms were initially spending less than 2% increased their CSR activity, but those that were initially spending more than 2% reduced their CSR expenditure. [18]

But, even if we were to take the CSR expenditure at its face value and assume the validity of all the numbers reported, there are still major issues that are to be dealt with. An expenditure that does not lead to higher profits for firms is treated as a tax by them. According to the KPMG, the corporate tax rate in India i.e. 34.61% is one of the highest in the world, compared to a global average of 24.09%. So, the CSR is viewed by the firms as a 2% tax, albeit it is not paid to the government but many companies consider the 2% CSR expenditure as another way of burning their pockets.

Even though there has been a substantial increase in the social activities incurred by the firms, but the spending has mostly gone to the set priorities of the company rather than the democratically determined priorities. Of the nine different schedules prescribed by The Companies Act, 2013 two schedules: combating various diseases and promotion of education accounted for 44% of the total CSR expenditure while reducing child mortality received no funding and eradicating extreme hunger and poverty received only 6% of the total CSR expenditure.

The fact that about 50% children in India are malnourished due to acute poverty, relief and care only appears as a distant dream to them. It is the government’s duty to determine and fulfil the needs of the society by channelizing the funds of the public. With the CSR law, the government has failed in one of its primary functions.

The issue of geographic inequity also needs to be taken into consideration as there is a wide amount of gap in spending on CSR activities between the states of India. For example, Maharashtra, Gujarat, Andhra Pradesh, Rajasthan and Tamil Nadu account for well over one-quarter of all CSR spending. Towards the bottom of the list are Nagaland, Mizoram, Tripura, Sikkim and Meghalaya—all from the North-East.

This inequity reflects the interests and priorities of the business sector. Therefore, it is the duty of the government to ensure that the society moves towards a more egalitarian society.

Issues Hindering the Corporate Social Responsibility

The earlier government used to rely on legislation and regulations for regulating the objectives of the business sectors. But, the reduction of government involvement in CSR has resulted in the exploration of non-voluntary actions.[19]

To ensure that CSR becomes a success, it is necessary that there should be a consensus among the local agencies. But, a lack of consensus, results in duplication of activities by the corporates which further results in generating a competitive spirit between the local agencies rather than a collaborative approach.

The success fruit of CSR can only be plucked when there exists knowledge about the CSR activities within the local communities. Since not much efforts have been put in creating awareness about the CSR activities, thereby it has resulted in a lack of interest on part of local communities in participating towards CSR activities.

Also, there is non-availability of well-organized governmental or non-governmental organizations in remote and rural areas. Due to the absence of any proper authority, the needs of the rural people often gets unnoticed and there remains no proper authority along which a company can assess and identify the needs of the society.

Further, the key to any successful CSR initiative is transparency, but there are certain perceptions that partner NGOs or local agencies do not disclose the information about their programs, address concerns, assess Impacts and utilize funds. This lack of transparency creates an indelible impact on the relationship and trust between the companies and local communities which is the key to the success rate of any CSR initiative.[20]

In order to ensure that the CSR activities are carried out in an efficient and effective manner, it is necessary to ensure that each organization and institution is well equipped with proper resources. But due to a dearth of trained and effective organizations, fulfilment of CSR initiatives, appears to be a distant dream. This results in the compromise and limitation of various CSR initiatives.

Various analysis shows that the law in its current form is failing to promote healthy CSR initiatives due to its poor enforcement and lack of clear obligations. The legal provisions related to CSR contains vague language which results in a high degree of self-interpretation.[21] Another flaw from which the CSR has to struggle is that the Act doesn’t penalize a defaulter and just allows them to walk away with an explanation regarding their failure on CSR activities. This results in high corruption, low levels of public confidence, low development and weak institutions.

Recently Maneka Gandhi also criticised the corporate houses for not taking the CSR initiatives seriously. Her criticism was in lieu of the poor response given by the corporate houses to Prime Minister Narendra Modi’s call of using the CSR route for Swacch Bharat Abhiyan.

Many corporate houses state that continuous changes and amendments in the law cause a great amount of confusion. As in the last one year, scores of changes have been made to the rules regarding the CSR law. For example, just a day before the law came into force, the government brought in changes in the list of activities eligible for CSR funding by including activities promoting healthcare and preventive healthcare. In January this year, the government clarified the types of organisations through which the CSR money can be spent.[22]

Conclusion

Corporate Social Responsibility has become an innate part of the working of Corporates in recent times. Though the concept of CSR was prevalent in India since antediluvian times, it is only, recently that the concept has picked favouritism in the companies. A new urgency in the backdrop of heightened awareness has single-mindedly changed the focus of the firms on Corporate Social Responsibility. It is CSR only that helps the environment and society to be treated the way they should be treated i.e. with respect. Although, CSR, has really proved to be fruitful and beneficial but to say that it has totally achieved its objectives, would be to negate the truth. Much needs to be done on this staid and sombre issue. If we have a closer look to this picture, we will find that the situation is quite antonym and astounding as due to lack of proper enforcement mechanisms and efficient CSR policies, the success of CSR remains a distant dream. The government should comprehend that corporates play an important role in the development of a nation and thereby they should make proper policies for the same and should ensure that apart from bigger charities, small charity organisations also get their due recognition. The government should also take initiatives in ensuring that all the areas get benefited from the social work of companies so that the disparity and bigotry among various regions gets converted into equality. The root cause of less success rate of CSR is the consideration of CSR as another form of tax that lingers on the necks of corporate heads. The government should thus safeguard that the perception and discerning of people gets improved. They must work towards developing a feeling of empathy in them, as this will not only make them motivated to do the right work but will also encourage them to report the right CSR expenditure. But, the problem does not finish there, as a lot of other quandaries still continue to haunt the government and among them, the most pivotal and fundamental is the lack of knowledge about CSR activities among remote areas and lack of any penalizing provisions. In order to tackle this oblivion among the companies, the government should constantly thrive towards promoting the same and thus should try to bring some penalizing provisions for CSR, as a pocket burn will give the strongest message to the companies. Apart from this, the government should also ensure that there is enough transparency and consensus in the whole process of Corporate Social Responsibility. But, a colourful change to this reprehensible situation can only be brought, when to work for the society comes from one’s own conscience. Government endeavours will all prove futile, if the yearning and longing to work for the benefit of the environment and society does not come to companies from innate and as it is rightly said that you can only bring the horse to the pond but can’t make it drink the water.

References

[1] Corporate Social Responsibility- Meaning, Needs and its Evolution,Management Study Guide(8 June 2018, 11:00 A.M.)https://www.managementstudyguide.com/corporate-social-responsibility.htm.

[2]Definitions of Corporate Social Responsibility- What Is CSR?,Mallen Baker (June 8, 2018, 11:15A.M.)http://mallenbaker.net/article/clear-reflection/definitions-of-corporate-social-responsibility-what-is-csr.

[3]Ellie Collier, The Importance of Corporate Social Responsibility for your Business (June 8, 2018, 7:30 P.M.) https://www.highspeedtraining.co.uk/hub/importance-of-corporate-social-responsibility/.

[4]Ibid.

[5]Business benefits of Corporate Social Responsibility, High Speed Training (June 8,2018, 7:45 P.M.) https://www.highspeedtraining.co.uk/hub/importance-of-corporate-social-responsibility/.

[6] Importance of Corporate Social Responsibility, Management Study Guide(June 9, 2018, 10:45 A.M) https://www.managementstudyguide.com/importance-of-corporate-social-responsibility.htm.

[7]Samantha Muir, Top 5 Benefits of Corporate Social Responsibility, Cube Group (June 9, 2018, 10:30 A.M.)http://cubegroup.com.au/top-5-benefits-of-corporate-social-responsibility.

[8]Sec. 135. (1) Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

(2) The Board’s report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.

(3) The Corporate Social Responsibility Committee shall,—

(a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;

(b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and

(c) monitor the Corporate Social Responsibility Policy of the company from time to time.

(4) The Board of every company referred to in sub-section (1) shall,—

(a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website, if any, in such manner as may be prescribed; and

(b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.

(5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:

Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:

Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.

[9]CA Divyang Gupta, Corporate Social Responsibility- Companies Act, 2013, TaxGuru (June 9, 2018, 11:30 A.M.) https://taxguru.in/company-law/corporate-social-responsibility-companies-act-2013-2.html.

[10]Evolution of Corporate Social Responsibility In India, Wikipedia Mirror Project, (June8, 2018, 11:45 A.M.) https://ipfs.io/ipfs/QmXoypizjW3WknFiJnKLwHCnL72vedxjQkDDP1mXWo6uco/wiki/Evolution_of_corporate_social_responsibility_in_India.html.

[11]SawatiNagwan, Evolution Of CSR in India, Volume 3 Issue 7 July, 164-165, (2014).

[12]Evolution OF CSR in India, Soul Ace (June 8, 2018, 01:05 P.M.) http://www.soulace.in/blog/evolution-of-csr-in-india/.

[13] Supra Note to 4.

[14] Lexie Forman Otiz, Top 10 Corporate Social Responsibility Initiatives, Smart Recruiters (June 9, 2018, 12:15P.M.) https://www.smartrecruiters.com/blog/top-10-corporate-social-responsibility-initiatives/

[15]Dezan Shira & Associates,  Corporate Social Responsibility In India, India Briefing( June 9, 2018, 12:45 P.M.) https://www.india-briefing.com/news/corporate-social-responsibility-india-5511.html/

[16]Omid Ghiam, 5 Examples of Corporate Social Responsibility in Companies, Involve Soft (June 9, 2018, 2:00P.M.)https://www.involvesoft.com/5-examples-of-socially-responsible-companies/.

[17] Oliver Balch, Indian Law requires the Company to give 2% to charity. Is it working?, The Guardian (June9, 2018, 2:30P.M.) https://www.theguardian.com/sustainable-business/2016/apr/05/india-csr-law-requires-companies-profits-to-charity-is-it-working.

[18]AneelKarnani, Why the CSR law is not a success, Live Mint ( June 9, 2018, 2:40 P.M.) https://www.livemint.com/Opinion/1wIQwFPRyRckBMg5IugW1K/Why-the-CSR-law-is-not-a-success.html.

[19] Syed Kazim, Corporate Social Responsibility, Issues and Challenges in India, The Companion ( June 9, 2018, 3:30 P.M.) http://thecompanion.in/corporate-social-responsibility-issues-and-challenges-in-india/.

[20]Anand Das Gupta, Implementing CSR in India: Issues and Beyond, 24-26,   file:///C:/Users/Guest/Desktop/kidnapping/9788132216520-c1.pdf.

[21]Ameeta Jain &Sandeep Gopalan, Legislative Response is required to push CSR in India, The Conversation (June 9, 2018, 4:00P.M.) http://theconversation.com/in-india-a-legislative-reform-is-needed-to-push-corporate-social-responsibility-80169.

[22] Savita Verma, Irresponsible Gaps in Corporate Social Responsibility, Down to Earth (June 9, 2018, 6:00 P.M.) http://www.downtoearth.org.in/news/irresponsible-gaps-in-corporate-social-responsibility-50990.