Saturday, September 14, 2013

CSR: India Moving Away From Philanthropic Approach

The Companies Act 2013 and the Draft Rules on CSR are over emphasizing the nexus between CSR and business. Section 135 of the Companies Act 2013, which requires large and profitable companies to spend two percent of the average profit of previous three financial years in CSR activities, says that a company should carry out CSR activities in the area where it operates and in areas closer to that area.
The Draft Rules explains the nature of CSR. It says: “CSR is not charity or mere donations.” It further explains: “CSR is a way of conducting business, by which corporate entities visibly contribute to the social good. Socially responsible companies do not limit themselves to using resources to engage in activities that increase only their profits. They use CSR to integrate economic, environmental and social objectives with the company’s operations and growth.”
I fail to understand how an organisation that is created to make money by servicing some social needs can have environmental and social objectives. Yes it has responsibilities in ensuring that natural capital will be available and affordable in distant future and that it is not adversely impacting the social fabric in general and the social fabric of the local community by its operation or the product or service. It also has the responsibility to adequately compensate outside stakeholders who bear the cost imposed on them by the company through unavoidable negative externalities. Perhaps, lawmakers in their zeal to establish that CSR is a business case used the term ‘objective’ instead of ‘responsibility’. I believe that CSR makes a business case when it is considered as a risk management tool.
By over emhasising the nexus between CSR and business, we are taking away the touch of philanthropy that was inherent in CSR activities of Indian business houses. If, we look at past records of business houses that are engaged in CSR activities, of course not as a PR initiative, much of those activities were guided by the urge to do some thing voluntarily in our ‘love for humanity’. Now, we are directing companies not to take up activities only for the ‘love of humanity’. The CSR Committee shall be accused of failing in applying due diligence process if it fails to establish the nexus between CSR and the business. 

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