Why corporate social responsibility is yet to become strategic, business tool

The book is a complete CSR manual for companies on what should be done and how to go about it. Both the legal part, as well as ethical issues, have been explored in detail.

corporate social responsibility, 2013 Companies Act, CSR in India, Steering Business Toward Social Change, Kshama V Kaushik, CSR, CSR programmes, Union Carbide, Enron, CSR spending
Everyone talks about corporate social responsibility, but it’s yet to become a strategic or business tool. (Image: LinkedIn)

Corporate social responsibility is probably one of the most spoken about subjects these days ever since it was made mandatory by the 2013 Companies Act. The issue is really debatable, as asking companies of a certain size and profits to keep aside money for bettering society raises questions of whether companies are responsible for this after paying their taxes to the government? Isn’t it the government that is supposed to do this job? But the counter-argument is that since corporates are using society’s resources of land, labour and things like water, etc, they owe it to society to pay back. While touching on this issue, Kshama V Kaushik, in her book, CSR in India: Steering Business Toward Social Change, provides a kind of omnibus on the issue of corporate social responsibility. It discusses not just the meaning, coverage and implementation of CSR in India, but also provides a view of what companies have been doing.

The important thing about CSR is the spirit in which it is pursued by companies. The Companies Act does try and ensure that the spirit is followed and elaborates on what all can be done and what is not acceptable. Hence, transferring funds to a government scheme is not CSR. Similarly, while all stakeholders are involved in this effort, expenses for fulfillment of any act or statute will not be permitted under this umbrella. Further, salaries paid to staff overseeing CSR, even if it is a separate department, will not qualify for CSR expense.

However, the Act allows conducting CSR through a third party, provided it is registered as a trust with a pre-defined track record. Also, it can be done through group entities or their holding companies. Similarly, such expenses may be pooled with other companies, provided they are able to apportion the same for the purpose of reporting. Hence, the Act is quite firm here, or else companies might use escape clauses to minimise this cost.

The author also takes on the issue of comparing CSR with government programmes. It is believed that the CSR effort will have more intensive multiplier effects than a government programme—like in education or medical care. The government is trying to get companies more involved with CSR, while appealing to their ethical spirit rather than paying lip service through mere compliance. The author also talks of the role of the board of directors and the committee that is responsible for it.

Interestingly, there are some examples of companies that have been following this Act even before it became mandatory for them to allocate funds. The story of the Tata group and its activities in Jamshedpur, Mithapur, Babrala, and Hosur are well-documented. Similarly, the Birla group has a similar history; the work of Wipro and SAIL has also been highlighted here. On the other hand, the dealings and operations of Union Carbide, Enron and Coca-Cola are given as examples of what should not be done.

The book is well researched, with the author delving into the 2014-15 results of the BSE top 100 companies to bring out some interesting results. The amount involved was Rs 6,720 crore, but only 78% of the amount was spent on CSR. Further, around 60% of the companies failed to spend the total amount that they were supposed to. The most preferred areas for deployment were education and livelihood, poverty and health. This constituted about Rs 2,900 crore, which is quite encouraging. Few have shown interest in technological incubators or in promoting innovation. Not surprisingly, most spend through third parties, which makes it more convenient from the compliance point of view. Companies that had been involved in philanthropy for long use their own foundations or trusts for implementing CSR. Also, environment is not a major target for directing CSR, unlike in the West.

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This can be because of probably consciousness being generally lower in India and social needs being more pressing. Also, as there are more third parties already in this field, it becomes easier. The author concludes that CSR is yet to become a strategic or business tool. The book is a complete manual for companies on what should be done and how to go about it. By giving examples of companies that have made a difference, others, too, should get inspired. Both the legal part, which is mandatory, as well as the ethical issues, are explored in some detail by Kaushik in this book, which will be of use to all companies.

The author also believes that by doing good, companies can enhance their social capital. She concludes by putting forward the view that the ‘art of giving is an art’, and the new Act makes it a legal science. Linking programmes with corporate strategy might not always be nuanced, but it is necessary.

What could have been discussed and thrown open to debate is how some well-known companies, whose activities actually work against society in terms of labour and land displacement, pollution, etc, also appear to do well on CSR spending. How is one to evaluate such issues?

Madan Sabnavis is chief economist, CARE Ratings.

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