'Business case' for corporate social responsibility

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Manish Desai | 12 Apr, 2011
Over the past several decades, the Tatas have established Trusts, which enabled setting up of institutions like the Indian Institute of Science (IISc) and the Tata Institute for Fundamental Research (TIFR).   Wipro Chairman Azim Premji has pledged to donate nearly Rs 10,000 crores for improving school education in the country. Infosys commits one per cent of its profits every year to social causes through the Infosys Foundation. The Birlas, the Mahindras, the Kalyanis and several other large corporations have been spending a fraction of their profits on social causes.

It is clear that in India there are an existent but small number of companies which practice Corporate Social Responsibility (CSR). These companies have been deeply involved with social development initiatives in the communities surrounding their facilities. Tata’s CSR activities in Jamshedpur include the provision of full health and education facilities for all employees and their family members.

However, CSR in the Indian context is still one of the least understood development initiatives. Barring the Navaratna and the Mini-Ratna PSUs, the reputed MNCs and a handful of large Indian companies, most others have a confused approach to CSR, interpreting it as philanthropy. To a great extent, companies see CSR as an add-on function and not core to their business. Hence, the approach has largely remained parental and generally cheque-book oriented.

But the situation is changing. CSR is coming out of the purview of doing social good and is fast becoming a business necessity. The Government, on its part has accepted the proposal of Parliamentary Standing Committee headed by former finance minister Yashwant Sinha, which makes it mandatory for companies with a turnover of Rs 1,000 crores or net profit of Rs 5 crores to allocate 2 per cent of their profits towards CSR.

The guidelines on CSR for Central Public Sector Enterprises state that “corporate social responsibility extends beyond philanthropic activities and reaches out to the integration of social and business goals. These activities need to be seen as those which would, in the long run, help secure a sustainable competitive advantage”. The CPSEs have also been mandated to create a CSR budget with contribution up to 5% of their net profit every year.

However, several individual companies as well as industry chambers had tried hard against the move to make CSR mandatory. Those who are opposed to the proposal argue that the very concept of CSR is built on the premise of ‘voluntary’ contribution and hence it should not be imposed on the companies by the Government. According to them, it is just a new form of tax on company’s profits.

Supporters of CSR say the opposition stems from a short-sighted viewpoint. The environment in which the companies operate today has changed vastly. A company can not operate efficiently without the support of the community. This is particularly true in the face of growing activism of the Civil Society Organizations (NGOs), which support the cause of the under-privileged.   Increasingly, the Governments, both at the Centre as well in several States are making inclusive growth intrinsic to their developmental strategies. The customers, the public and the investors also expect companies to act sustainable as well as responsible. Hence, CSR is becoming an outcome of a variety of social, environmental and economic pressures.

Genesis of Corporate Social Responsibility
The concept of Corporate Social Responsibility was first mentioned in 1953 in the publication ‘Social Responsibilities of the Businessman’ by William J. Bowen. But, the term CSR became popular only in the 1990s. The term is still imprecise and its application differs widely.

Worldwide, honouring of a triple bottom line - people, planet, profit has gained universal acceptance.   An approach to CSR that is becoming more widely accepted is community-based development . In this approach, corporations work with local communities to better themselves.   Philanthropy, where corporates give monetary donations and aid to local organizations and impoverished communities, continues to dominate CSR, though it faces serious criticism. Progressive organizations do not support this form of CSR as it creates a dependence syndrome amongst its recipients rather than developing long-term capabilities. Another approach that is garnering support is deliberate inclusion of ‘public interest’ and ‘fair trade’ in corporate decision making.

Extent of CSR in India
In India, most leading corporates are involved in CSR programmes in areas like education, health, livelihood creation, skill development, and empowerment of weaker sections of the society. According to a study undertaken by an industry body in June 2009, which studied the CSR activities of 300 corporate houses, corporate India has spread its CSR activities across 20 states and Union territories, with Maharashtra gaining the most from them. About 36 per cent of the CSR activities are concentrated in the state, followed by about 12 per cent in Gujarat, 10 per cent in Delhi and 9 per cent in Tamil Nadu. The companies had on an aggregate, identified 26 different themes for their CSR initiatives. Of these 26 schemes, community welfare tops the list, followed by education, environment, health, as well as rural development.

The survey reveals that, not surprisingly, the corporates targeted most of their activities around the areas they operate. This trend is likely to continue. But the flip side is that, it is generally the more developed states that have been the beneficiaries of CSRs, rather than the ones languishing at the bottom, whose developmental needs are more central.

Another survey, which ranked Indian companies’ CSR activities on a scale of 0-5, showed that none of the Indian companies got placed in the highest level. Only 16 % of the 500 companies surveyed had well defined CSR activities. The concept was yet to catch up with the remaining 86% of the companies.   Lack of understanding, inadequately trained personnel, non availability of authentic data and specific information on the kinds of CSR activities, coverage, policy etc. further added to the reach and effectiveness of CSR programmes.

The Government is now working on a framework for quantifying the CSR initiatives of companies to promote them further. Efforts are also on to develop a system of CSR credits, similar to the system of carbon credits which are given to companies for green initiatives.

The National CSR Hub
The establishment of the National CSR Hub at the Tata Institute of Social Sciences, Mumbai is a major step towards institutionalizing CSR activities in the country. TISS will act as a think-tank, undertake research for the corporate social responsibility projects. Funded by the Department of Public Enterprises, the National CSR Hub will also undertake nation-wide compilation, documentation and creation of database. The purpose is to dovetail CSR activities with overall national development goals.

The new Guidelines on CSR lay stress on shift from casual approach to the project based accountability approach. There is greater emphasis on identification of projects based on surveys, laying down clear cut path to implement programmes as well as their monitoring. It is also prescribed that activities under CSR are to be implemented by specialized agencies and not by the staff of the companies. Specialized agencies would include community based organizations (NGOs), panchayat organizations, academic institutes, trusts and missions, Self-Help Groups, Mahila Mandals etc.

Noted CSR expert Prof. Leo Burke of the Notre Dame University, USA says India needs to adopt ‘national-local’ approach. “National in the sense that there will be need for nationwide alliances and databases in order to quickly learn best practices, share innovations, and ‘scale-up’ pilot programmes. Local in the sense that it will require organizations to efficiently implement programmes at the grassroots level, as well as mobilize volunteers to serve their local communities.”

The argument that the primary goal of business is to make profits and pay taxes, and it is the responsibility of the governments – local, state and central to create necessary social infrastructure, continues to remain valid.   But, a business needs a healthy, educated workforce, sustainable resources to compete effectively. For society to thrive, profitable and competitive businesses must be developed and supported to create income and opportunities. This is called ‘Creating Shared Values’ and it is here that the interests of the companies and the society converge.   This has led to the ‘business case’ for CSR gaining ground and many corporate houses are realizing that ‘what is good for workers - their community, health, and environment is also good for the business’.

* Manish Desai is Director (Media & Communications), PIB Mumbai.
* The views expressed by the author in this feature are entirely his/her own and do not necessarily reflect the views of SME Times.