Considering that businesses ultimately source their needs from the community, CSR is a long term investment in society
The Indian investor; world considers him the Warren Buffet of India; Forbes reckons he is among India’s 50 richest businessmen. Rakesh Jhunjhunwala is unmoved by these labels as he makes good on his pledge to give away 25% of his personal income every year to social causes. There is a very long list of Indian entrepreneurs who give back to society – the several Tata Trusts, Azim Premji, Shiv Nadar, the founders of Infosys, and others whose contributions run into thousands of crores of rupees annually.
Warren Buffett, worth over USD 80 billion, is the third richest man on the planet, and is inimitable both in business and philanthropy. He channels 99% of his fortune through the Bill and Belinda Gates foundation, which is active across the globe. He also started a movement called ‘The Giving Pledge’, which encourages wealthy people to share their wealth by giving back to society. Hundreds of billionaires across the globe contribute to various causes ranging from healthcare, education, housing to poverty alleviation, environmental protection and raising the quality of life.
The whole concept of philanthropy or giving back to society is changing as corporations consider it their social duty to invest back into the society from which they have benefited. From all the factors of production and supply of services, corporations depend on the resources which, ultimately, belong to the community of people. Hence, if corporations, in their new found consciousness, realise that it is their duty to give back to society, it is not a donation freely given by a philanthropist, but it is a long term investment in and for society. What JRD Tata, who was conferred with the ‘Bharat Ratna’ – the highest national award of India, expressed remains a perfect definition and description of Corporate Social Responsibility (CSR), “We generate wealth for the people. What comes from the people must, to that extent possible, therefore get back to the people.”
India’s Companies Act, 2013 has made it mandatory for corporations to set aside 2% of their profit to fulfil the obligation of CSR. Its advocacy of CSR differs from mere philanthropy as it mandates it as a legal obligation to invest in vital social causes. Section 135 of the Act has five clauses which lay out a clear CSR programme: a) ‘Every company having net worth of ₹500 crore or more, or turnover of ₹1000 crore or more or a net profit of ₹5 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;’ b) The Board’s report must include CSR programmes; c) The committee shall formulate and implement policies, as well as monitor all the concerned activities; d) All of these have to be passed by the board; e) CSR activities shall be conducted in the immediate areas where it is a part of the community and the company shall file reports of its activities and the monies spent so as to meet the 2% expenditure obligation. To further clarify, CSR Schedule VII of the Act lists various activities as immediate priority such as poverty alleviation programmes, education, skills development, health related activities, taking up environmental issues, promoting social entrepreneurship and promoting gender equality.
The larger question is whether CSR is limited only to those companies which satisfy Section 135, clause 1 by their financial profit or turnover. One must understand the mind of the lawgiver. There is no law to perform good deeds. The law has made it mandatory to those who have adequate means and should understand their social responsibility. Consequently, any organisation big or small, any company small, medium or large should take up social causes within their means, which will make them part and parcel of their society.
CSR, unlike individual philanthropists, does not consist of mere handouts, aid, grants, donations, assistance, gifts and contributions; it consists of a well structured organisation with set goals and focused activities. Such an organisation must be broadly based on the following principles:
- Formation and Governance: CSR is a sub-organisation within the company with a functioning board, clear mission and objects, set goals, plans, sanctioned funds and dedicated staff. CSR governance, under its parent – the company board, has a well defined governance structure to conduct its activities and reporting.
- Disclosures by CSR committee: This consists of not only the enumeration and actual work of the activities conducted, but also the manner in which they are conducted and their results. Independent feedback too is part of disclosures where the impact of the action is examined. Apart from this, the financial disclosures are most important since the parent company board has to assess the viability of the CSR action.
- Stakeholders: What the CSR organisation must focus on are the stakeholders. In the priority list, first come the employees of a company, followed by the customers, vendors and the community at large. The purpose of prioritisation is to make the undertaken activity meaningful and consequential in its action.
- Sustainability: The CSR organisation must understand that its activity is relevant only if it is sustainable. Some failed activities of some companies are street children’s welfare, schools for the poor, shelter for strangers, food for the hungry and such, which are mostly in poverty stricken areas of urban India. That is the reason why we do not see any change in the urban poverty scenario.
In conclusion, from what we have observed above, two features stand out prominently as sine qua non requirements – planning and strategy. The committee on CSR is an organ of the parent company. Hence, it will professionally plan its activities in the same way with a change in objective where, instead of profit, benefit of the recipients is paramount. The strategy will depend on the approach to the chosen activity. For instance, the strategy for an educational activity will be different than the strategy for an environmental issue such as sustainability of flora and fauna.
In the ultimate analysis, CSR is quite simply doing something good. What Henry David Thoreau (1817-1862), one of the greatest naturalists and the inspiration to Mahatma Gandhi on civil disobedience, said applies to CSR, “Goodness is the only investment that never fails”
