The passing of Companies Act, 2013 is a big step as far as Corporate Social Responsibility is concerned, but the corporate and the government need to go beyond just legal compliance
Section 135 of the new Companies Act, 2013 deals with the Corporate Social Responsibility. For the first time in India, the Corporate Social Responsibility has been made mandatory by an Act of Parliament. The said Section stipulates that every company having net worth of ` 500 crores or more or turnover of ` 1,000 crores or more or a net profit of ` 5 crores or more during the financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of 3 or more Directors out of which at least one Director shall be an Independent Director.
The Section further goes onto define what the Board’s report u/s 134(3) of the Companies Act shall disclose namely the composition of Corporate Social Responsibility Committee.
Further, the Section 135 (3) stipulates the duties of the Corporate Social Responsibility Committee shall,-
The Board of every company referred to in sub-section (1) shall,—
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 itwhere it operates, for spending the amount earmarked for Corporate Social Responsibilityactivities: Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of subsection (3) of section 134, specify the reasons for notspending the amount.
To a general reader the above is what is stipulated or mandated by the law. The author would like to go a step beyond and explain the need to put the heart and soul by a business and its Directors into Corporate Social Responsibility.
The increased importance of corporate social responsibility has prompted governments to promote socially and environmentally responsible corporate practices. The heightened role of government in CSR has facilitated the development of numerous CSR programs and policies. CSR critics such as Robert Reich argue that governments should set the agenda for social responsibility by the way of laws and regulation that will allow a business to conduct themselves responsibly. Actors engaged in CSR are governments, corporations and civil societies. The laws legally binding the corporation’s behaviour and activity are quite insignificant in relation to the global consequences. Only recently have countries included CSR policies in the government agenda. Common types of countries who have implemented CSR laws generally consist of those which are socioeconomically and politically sophisticated. The level of political stability and effectiveness is inextricably linked to a country’s capacity to ensure national CSR policies.
Danish parliament way back in 2008 adopted a bill making it mandatory for the 1100 largest Danish companies, investors and state-owned companies to include information on corporate social responsibility (CSR) in their annual financial reports. The required information included:
Let’s define what corporate social responsibility is. The corporate social responsibility of a business start from the day it plans to set up a new business and which will have an impact on the stakeholders. The most important stakeholders are the people and the surrounding which will be affected or which will be impacted by the business undertaken by the companies.
Corporate social responsibility is a form of corporate self-regulation integrated into a business model. CSR policy functions as a built-in, self-regulating mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms. The aim of the CSR activity is to encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and society in general. A company should embrace responsibility for its actions, which is the main goal of the CSR.
Corporate social responsibility is to aid an organization’s mission as well acting as a guide to what the company stands for and will uphold to its consumers. ISO 26000 is the recognized international standard for CSR. Public sector organizations adhere to the Triple Bottom Line (TBL). “People, planet and profit” succinctly describes the triple bottom lines and the goal of sustainability.
Social accounting, auditing, and reporting are important elements of CSR as they describe the communication of social and environmental effects of a company’s economic actions to particular interest groups within society as well to society at large. D. Crowther defines social accounting as “an approach to reporting a firm’s activities which stresses the need for the identification of socially relevant behavior, the determination of those to whom the company is accountable for its social performance and the development of appropriate measures and reporting techniques.”
It refers to a local community’s acceptance or approval of a company’s project or ongoing presence in an area. It is increasingly recognized by various stakeholders and communities as a prerequisite to development.
The development of social license occurs outside of formal permitting or regulatory processes, and requires sustained investment by proponents to acquire and maintain social capital within the context of trust-based relationships. Local conditions, needs, and customs vary considerably and are often opaque, but have a significant impact on the likely success of various approaches to building social capital and trust.
Governments could facilitate the necessary stakeholder mapping in regions for which they are responsible and provide a regulatory framework that sets companies on the right path for engagement with communities and stakeholders.
A CSR program can be an aid to recruitment and retention, particularly within the competitive graduate student market. It can help improve the perception of a company among its staff by involving them through payroll giving, fundraising activities or community volunteering. It has been found to encourage customer orientation among frontline employees.
Managing risk is a central part of many corporate strategies. Reputations that take decades to build up can be ruined in hours through incidents such as corruption scandals or environmental accidents. These can also draw unwanted attention from regulators, courts, governments and media. Building a genuine culture of ‘doing the right thing’ within a corporation can offset these risks.
Companies strive for a unique selling proposition that can separate them from the competition in the minds of consumers. CSR can play a role in building customer loyalty based on distinctive ethical values. Several major brands, such as The Cooperative Group, The Body Shop and American Apparelare built on ethical values. Business service organizations can benefit too from building a reputation for integrity and best practice.
This include practices such as recycling, waste management, water management, using renewable energy sources, utilizing reusable resources, creating ‘greener’ supply chains, using digital technology instead of hard copies, developing buildings according to Leadership in Energy and Environmental Design (LEED)® standards, etc. This is dedicated specifically to environmental sustainability consulting for businesses of any size to utilize.
This involves raising money for local charities, supporting community volunteerism, sponsoring local events, employing people from a community, supporting a community’s economic growth, engaging in fair trade practices, etc.
Companies that practice ethical marketing are placing a higher value on their customers and respecting them as people who are ends in themselves. They do not try to manipulate or falsely advertise to potential consumers. This is important for companies that want to be viewed as ethical.
Critics of CSR as well as proponents debate a number of concerns related to it. These include CSR’s relationship to the fundamental purpose and nature of business and questionable motives for engaging in CSR, including concerns about insincerity and hypocrisy. Another concern is that sometimes companies claim to promote CSR and be committed to sustainable development but simultaneously engage in harmful business practices.
Some critics believe that CSR programs are undertaken by companies to distract the public from ethical questions posed by their core operations. They argue that some corporations start CSR programs for the commercial benefit they enjoy through raising their reputation with the public or with government.
The main principles involving corporate social responsibility involve economic, legal, ethical and discretionary aspects. Levels of corporate social responsiveness to an issue include being reactive, defensive, responsive and interactive. All terms are useful in issues management. Selecting when and how to act can make a difference in the outcome of the action taken.
The rise in popularity of ethical consumerism over the last two decades can be linked to the rise of CSR. Industrialization, in many developing countries, is booming as a result of both technology and globalization. Consumers are becoming more aware of the environmental and social implications of their day-to-day consumer decisions and are therefore beginning to make purchasing decisions related to their environmental and ethical concerns.
So, what corporate should focus is to ensure the following principles:
By this time everybody is aware that the much-awaited Land Acquisition Bill 2014 has been passed by the Lower House and is awaiting its introduction in the Rajya Sabha before it becomes an Act. Though the rehabilitation of the farmers or the land owners may not come under the purview of a corporate social responsibility, the setting up of a business or an industry for which the land is being acquired will give rise to a larger issue whether the company which sets up the industry in the acquired land will be liable to look into the aspects of corporate social responsibility vis-a-vis the people affected by the displacement. It may, however, be stated for the sake of argument that because the farmers or land owners has been paid market value for the land which is acquired from them, there is no further duty of the company towards them.
The construction of Metro III Phase of Mumbai has also given rise to the issue of the government’s social responsibility towards the people, even though the setting up of the Metro is for the good of the city. In the face of the problems faced therein by the people, when their settlements are uprooted and destabilized, the government cannot exonerate itself from fulfilling its social responsibility, which, however, the government is trying to completely impose on the corporates. But the Government cannot disassociate itself from the social responsibilities which they have to fulfil and cannot thrust those responsibilities on to the corporate alone.
We know that every Government, be it the Government at the Center or in the State, is bound by the dictums of the Constitution of our country, which stipulates that every Government will function only for the betterment of the people of India. Therefore, in the view of the author, the social responsibility cannot be limited to corporates alone. It cascades to each and every one of us i.e., every action of an individual or a Government or a corporate has to take into consideration the issues which affect people. Therefore, the need of the hour is to go beyond the provisions of the Companies Act, 2013. This really will be fulfilling one’s responsibility towards the people and the surroundings of our nation.
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