India’s CSR journey and scenario today

With the arrival of colonial rule in India the approach towards CSR changed.

Oct 22, 2013 04:10 IST India Infoline News Service

CSR history and its transition

CSR started as Philanthropy. In the pre-industrialization period, till 1850, merchants helped the society in getting over phases of famine and epidemics by providing food and money and thus securing an integral position in the society.  With the arrival of colonial rule in India the approach towards CSR changed. The industrial families of the 19th century such as Tata, Godrej, Bajaj, Modi, Birla and Singhania were strongly inclined towards economic as well as social developments. Culture, religion, family values, tradition and industrialization were they key influencers of CSR. It was observed that efforts towards social as well as industrial development were not only driven by selfless and religious motives but also influenced by political objectives.

During the independence movement, there was increased stress on Indian Industrialists to demonstrate their dedication towards the progress of the society. Mahatma Gandhi introduced the notion of "trusteeship", according to which the industry leaders had to manage their wealth so as to benefit the common man. "I desire to end capitalism almost, if not quite, as much as the most advanced socialist. But our methods differ. My theory of trusteeship is no make-shift, certainly no camouflage. I am confident that it will survive all other theories."  Gandhi's influence put pressure on various Industrialists to act towards building the nation through socio-economic development. According to Gandhi, Indian companies were supposed to be the "temples of modern India". Under his influence businesses established trusts for schools, colleges, hospitals and also helped in setting up training and scientific institutions. The operations of the trusts were largely in line with Gandhi's reforms which sought to abolish untouchability, encourage empowerment of women and rural development.

Post independence during 1960 to 1980 the element of "mixed economy", emergence of Public Sector Undertakings (PSUs) and laws relating labour and environmental standards gained importance. During this period the private sector was forced to take a backseat. The public sector was seen as the prime mover of development. Because of the stringent legal rules and regulations surrounding the activities of the private sector, the period was described as an "era of command and control".  The policy of industrial licensing, high taxes and restrictions on the private sector led to corporate malpractices which lead to enactment of legislation regarding corporate governance, labour and environmental issues. PSUs were set up by the state to ensure suitable distribution of resources (wealth, food etc.) to the needy, but this was effective only to a certain extent. Expectations from the private sector rose again and their active involvement in the socio-economic development of the country became absolutely necessary. In 1965 Indian academicians, politicians and businessmen set up a national workshop on CSR aimed at reconciliation. They emphasized upon transparency, social accountability and regular stakeholder dialogues. In spite of such attempts CSR failed to catch steam.

During rapid industrialization in 1980 Indian companies started abandoning their traditional engagement with CSR and integrated it into a sustainable business strategy. In 1990s the first initiation towards globalization and economic liberalization were undertaken. Controls and licensing system were partly done away with which gave a boost to the economy the signs of which are very evident today. Increased growth momentum of the economy helped Indian companies grow rapidly and this made them more willing and able to contribute towards social cause. Globalization has transformed India into an important destination in terms of production, manufacturing and marketing. The overseas markets were becoming more and more concerned about labour and environmental standards in the developing countries.  Indian companies who were into producing goods for the developed countries needed to pay a close attention to compliance with the international standards. The basic objective of social responsibility was to maximize the company's overall impact on the society and stakeholders. CSR policies, practices and programs were being comprehensively integrated by companies throughout their business operations and processes. A growing number of companies felt that economy helped Indian companies grow rapidly but it was important for protecting the goodwill and reputation to increase business competitiveness.

Government realizing the importance of Corporate India in social development

The Companies Act 1956 was revamped with the New Companies Act 2013, the Act of Parliament received the assent of the President on the 29th August, 2013.  The New Companies Act 2013 has also introduced a new Section on Corporate Social Responsibility (CSR), Section 135, making CSR mandatory for all Companies operating in India, with an eligible criterion based on their finances.   The criterion is simple every company having net profit or profit before tax (PBT) of Rs 5 crores or more, net worth of Rs 500 crores or more, or turnover of Rs 1,000 crores or more, during any financial year shall constitute a Corporate Social Responsibility Committee on the Board, consisting of three or more directors, out of which at least one director shall be an independent director. The rules further say that CSR is not charity or mere donations.  The companies should use CSR to integrate economic, environmental and social objectives with the company’s operations and its growth. The CSR committee shall formulate its CSR policy, based on which activities and specific budget would be allocated. The programmes implemented would be monitored and reported through company’s website and annual report.  2% CSR spending would be computed as 2% of the average net profits made by the company during the preceding three financial years.  Companies have to carry out and report their CSR initiatives for the financial year 2014 – 2015 and so the assessment year would be 2015 – 2016.  The reporting or governance is simple “State what you will do, report what you did”.

Growing need to strategies CSR

Today CSR requires strategic intervention due to impact it is expected to create. Increase in CSR spend and scale has made it even more important for companies to carefully look at CSR plan and delivery. CSR around the world follows 4 approaches, which could be categories as Link to Business, Delink from Business, Address nations pressing problems or address the local community needs. The most popular now in India is Link to Business, which helps companies integrate CSR as part of its business strategy and present a win-win situation at both ends. This approach expedites focused social development, creates stronger financial performance and higher understanding of social & environmental dimensions of a company’s performance. Thus help build effective partnership, integrate and enrich supply chain, establish a company as employer of choice and improve relationship with its stakeholders to harness open dialogue with transparency. Today company’s financial performance has direct effect on its social equity and this process is more sincere and pragmatic. Correcting one’s actions are very crucial for survival and effective growth “what got you here won’t get you there” (book title written by Marshall Goldsmith)
 
Companies are building specialized CSR teams to formulate policies, strategies, goals and budget. Themes and programs are often determined by values, philosophy and policies of the company.  Mere programs of employee’s engagement will not be enough to fulfill a company’s CSR commitment; it would require regular and structured interventions.

Importance of integrating Social and Organizational values

CSR professionals need to balance and recognize the links between the society welfare and the success of the organization.  They need to examine the opportunities which should be designed to benefit the organization as well as the community, now and in future. To build a stronger commitment it is important to integrate CSR into key business areas, by identifying and managing the positive and negative impact of business activities on the society.

If a company wants to integrate and drive CSR throughout the organization, it needs to align its social responsibility strategies and goals with organizational objectives.  This will embed CSR within the business culture to sustain the strategy over the long term. 

It is important to evaluate potential and complex impacts due to social and environments initiatives before investing.  This will help build a clear action plan and avoid deviation. Identifying current vulnerabilities and predict future pitfalls related to business practices would be useful to identify your core CSR theme areas.

A CSR approach can help improve corporate governance, transparency, accountability and ethical standards. Companies are global ambassadors of change and values. Technology offers opportunities to improve dialogue and partnerships. Consumers and investors are showing increasing interest in supporting responsible business practices and are demanding more information on how companies are addressing risks and opportunities related to social and environmental issues.

People in many countries are making it clear that corporations should meet the same high standards of social and environmental care, no matter where they operate. At the same time, there is increasing awareness of the limits of government legislative and regulatory initiatives to effectively capture all the issues that CSR address. Businesses are recognizing that adopting an effective approach to CSR can reduce the risk of business disruptions, open up new opportunities, drive innovation and enhance brand.

The author is Principal, Conexus Social Responsibility Services

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