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5 Reasons Why the New Indian Companies Bill Negates the Power of CSR

By making CSR mandatory and placing an unnecessary focus on reporting, will the Companies Bill slow or progress CSR in India?

Submitted by: Guest Contributor

Posted: Sep 20, 2013 – 09:30 AM EST

Tags: csr, companies bill, india, business, sustainability, philanthropy, impact, culture, csr reporting, systems thinking, innovation

 
Akhila_vijayaraghavan_copy

By Akhila Vijayaraghavan

The recent overhaul of the Companies Bill in India, which has not been updated since 1950 does have many merits. For one thing, it simplifies many issues and aims at greater transparency and ease of doing business in India. It has also introduced class action lawsuits, which will protect smallholders, a remarkable move.

As a CSR Practitioner, however, the bone of contention remains the mandatory 2 percent spend for companies with profits over 50 million Rupees ($816, 000) in the last three years. While this mandatory spend may seem like an excellent move and a great business opportunity, especially for smaller consultancies like mine, digging a little deeper, reveals this is simply not true.

1. Unnecessary Focus on Reporting

First, the mandatory spend immediately puts the focus on quantifying CSR activity and not qualitatively assessing what makes strategic sense for a business. Quantifying CSR activity puts focus on reporting, which in a country like India will simply lead to a ‘copy-paste’ reporting culture. This ultimately acts as a deterrent for those of us who want to push CSR for its merits and not simply as something that requires additional paperwork.

The Bill also goes against the very basis of CSR, which is voluntary – it is a policy that a company copy-pasteundertakes that positively affects the triple bottom line. It mitigates risks, boosts employee morale, makes business practices more sustainable and impacts the consumer market. Making a voluntary action mandatory corrupts the very fundamentals of the concepts of CSR.

2. Hinders Natural Evolution of CSR

Perhaps the biggest worry for practitioners is that making CSR mandatory hinders the natural evolution of CSR in a business culture as diverse as India’s. Currently, CSR activity is at a very nascent stage with the absence of an agreed-upon definition of what constitutes CSR, a continual roadblock. Instead of steering companies toward a model of creating shared value, the current changes will emphasize the advancement of a charity-based model of CSR, already quite prevalent across much of India Inc.

3. CSR Activity Should Not Be Governmental Duty

According to the Bill, recognized CSR activity falls under the following categories:

  • Eradicating extreme hunger and poverty
  • Promotion of education
  • Promoting gender equality and empowering women
  • Reducing child mortality and improving maternal health
  • Combating HIV, AIDS, Malaria and other diseases
  • Ensuring environmental sustainability
  • Imparting employment enhancing vocational skills
  • Social business projects
  • Contribution to certain funds

However, for CSR to be truly embedded and successful, it must act as a powerful lever to empower and engage a company’s stakeholders and fit in with the strategic vision of a company. The above mentioned activities instead allocate social responsibility to a government duty instead of presupposing it as the responsibility of the private sector.

How will a company, for example, decide what projects fit under its "CSR initiative" versus those handled by the government?

4. CSR Needs Not Be Altruistic to Be Effective

According to India's Corporate Affairs Minister Sachin Pilot,

"CSR should be viewed as something that you are doing – whether through cash or kind, or man-hours, or anything else – to bring smiles to the people's faces and not for your EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation)."

While inspiring, Pilot's declaration pivots CSR altruism-csrfrom being a call of business to something undefined and unrelated – something more. But CSR need not be altruistic to be effective. Companies like PepsiCo and Coca-Cola invest in projects like water treatment facilities and a zero waste footprint for their products because it helps them reduce their resource use, which in turn helps them become sustainable and achieve higher profits.

General Motors recycles and saves itself millions of dollars, because it is good business and impacts its bottom line while pushing innovation, better technology and building accountability.

5. CSR is a Corporate Tool

Finally, the Bill should not be expected to become a tool for companies to use CSR as a vehicle to promote philanthropy that has little or no alignment with their business – and therefore, tends to fall off the radar after the initial run. Yet, this is exactly what it does. At the end of the day, CSR must be used as a corporate tool that makes companies accountable for their actions, not a governmental policy.

What CSR is, and Should Do

The Indian business scenario is not without its merits and CSR has a massive role to play as long as it has guidelines to help in its progression. These guidelines need to play up India’s strengths like India-businessinnovation. Jugaad (literally meaning an improvised arrangement or work-around, which has to be used because of lack of resources) has always been a way of life in India – now if we can take this intrinsic concept and mix it with some systems thinking to streamline evolution, Indian Inc. will have a global playing field.

Besides, CSR should encourage cross-pollination of ideas, systems thinking and holistic problem solving. It should support transparency, innovation, stakeholder engagement and consumer empowerment, all in order to make businesses do better by creating products and services that put human and environmental health at the forefront.

Confusing these goals with mere policy will result in a stagnation of CSR. Sadly, this is what the mandatory spend encourages.

About the Author:

Akhila is the Founding Director of GreenDen Consultancy, which is dedicated to offering business analysis, reporting and marketing solutions powered by sustainability and social responsibility. Based in the U.S., Europe, and India, GreenDen consultants share best practices and innovation from around the globe to achieve real results. As an IEMA-certified CSR practitioner, she hopes to highlight a new way of doing business. Vijayaraghavan graduated in Molecular Biology and Environmental Management and Law from the University of Glasgow, U.K. She can be contacted via Twitter @aksvi.

Related:
How Corporate India Can Leverage a Mandatory CSR Bill to Shift Gears for the Long Term

A Giant Leap Backwards On CSR: India’s Great Missed Opportunity

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