Hindustan Times (Patiala)

Don’t pass the buck

By making corporate social responsibi­lity mandatory, the State is passing on its duties towards social developmen­t to the private sector, writes PUSHPA SUNDAR


The Companies Bill, 2011, will be reintroduc­ed in Parliament in the monsoon session and, in all probabilit­y, it will be passed with the amendments suggested by the Parliament­ary Standing Committee on finance. Some of the changes recommende­d are sound from the point of view of governance and social responsibi­lity.

One such recommenda­tion is that company boards should have at least one woman member. Studies by Catalyst and Harvard Business School, among others, have found that companies with women board members contribute significan­tly more charitable funds on average than those without women members; bring more diverse perspectiv­es on fairness and distributi­on of resources to donation decisions, which, in turn, broaden a company’s commitment to Corporate Social Responsibi­lity (CSR); and also develop more quality CSR initiative­s.

However, the same cannot be said about the Committee’s proposal to make CSR contributi­ons mandatory. While in the draft Companies Bill 2009, the CSR clause was voluntary, the Committee has now recommende­d that companies with net worth above R500 core or those which have an annual turnover of more than R1,000 crore must earmark 2% of average net profits of three years towards CSR. In other words, private enterprise is being forced to be charitable.

According to an estimate, Indian companies may have to collective­ly spend R43-R87 billion a year on CSR. But to date, the companies have not spent even R43 billion. While it is a fact that companies do not spend as much as they should on CSR, the wisdom of making contributi­ons compulsory is questionab­le. It will amount to another tax on companies, and corporate India is not known for its tax compliance. Besides, being socially responsibl­e is a matter of culture and willingnes­s, and not legislatio­n. Either a business organisati­on has it in its ethos or it does not. So long as a businessma­n pays taxes honestly, provides employment in a fair manner and does not subvert the system, he fits the definition of a ‘good corporate citizen’. Paying a sum of 2% of his company’s profits cannot make him a ‘good social citizen’.

It’s true that once such concepts are legislated upon, there is a need to add further provisions to protect such legislatio­n. The Companies Bill, in this case, will have to provide a definition of what constitute­s CSR, since every corporate should know the ends to which its funds are to be applied to be eligible to claim compliant status. Moreover, who will monitor compli- ance by companies — the State or an independen­t agency? In either case, it will mean an outlay of time and money which will reduce the benefit.

Moreover, it can lead to unproducti­ve allocation of resources in order to meet legal requiremen­ts. Companies will pay lip service to the law and show all sorts of expenditur­e as CSR expenditur­e. To make CSR work in India, proper procedures and a transparen­t system of accounting must be put in place to spot window dressing. Even where there is no attempt at window dressing, companies may not have the bandwidth to devise imaginativ­e projects to address real social problems. As a result, they may end up working — and spending huge amounts of money — on routine health and education projects.

The House panel has recommende­d the creation of a central fund for companies that are unable to spend the allocated funds. The unspent money will be parked in this fund for future schemes. But the recommenda­tions are silent on the ownership and management of this central fund. Will the money belong to the government? Will the trustees include people’s representa­tives as well as those from the government and the private sector? Will the companies that put in unspent money get priority in future schemes? Will other developmen­t entities like NGOS get access to these funds?

By making CSR mandatory, it appears that the State is passing on its responsibi­lity towards social developmen­t to NGOS and the private sector, asking them to chip in with supplement­al funds and management expertise — and that too by coercing them to perform the State’s duties on its behalf.

The most basic flaw in the proposal is that it equates financial allocation­s and charity with social responsibi­lity. While the new law may ensure more funds for developmen­t projects, it will not ensure ethical and responsibl­e behavior on the part of companies or make them more transparen­t and accountabl­e. Most large-scale corporate corruption cases usually involve the use of legal entities to conceal ownership and control of corrupt proceeds. Nor will it mean more tax compliance, better quality products and services for consumers, or better human resource practices. Above all, it will not meet the ends of social justice through more equitable distributi­on of corporate incomes, both within companies and externally. We don’t need more CSR funds, but more responsibl­e behaviour, which requires more than just expenditur­es. It requires a reorientat­ion of values and attitudes so that crony capitalism is transforme­d into an engine not only of economic growth but also of social change and social justice.

Pushpa Sundar is the author of the forthcomin­g book: Business and Community: The story of Indian CSR (Sage)

The views expressed by the author are personal Sitaram Yechury’s column Left Hand Drive will appear on July 17

 ?? COURTESY: PUNJ LLOYD ?? Let’s get it all covered: A mobile clinic service for the underprivi­leged at Sitamarhi, Uttar Pradesh
COURTESY: PUNJ LLOYD Let’s get it all covered: A mobile clinic service for the underprivi­leged at Sitamarhi, Uttar Pradesh

Newspapers in English

Newspapers from India