Corporate Social Responsibility - For the Welfare of the World
Posted in Human Resources Articles, Total Reads: 1250
, Published on 16 August 2015
The corporate social responsibility is a concept where the companies or the firm voluntarily decide to contribute for the welfare and the betterment of the society and the companies do so through business activities and social investment. Famous Nobel laureate and economist Milton Friedman in 1970 has wrote in his article “The responsibility of business is to increase its profits” that the corporate executives are the agents of the shareholders and their responsibility is make profit as much as possible while sticking to the basic rules of society incorporating both law and ethical system. The history of CSR is very long and varied. The footprint of CSR can be witness throughout the world, especially in the developed country like United States, while the idea of CSR was also been strongly supported by Europe.
Over the past few years, a large number of companies are contributing in CSR and foster their CSR strategy so that customers, the general people and the investors consider them as responsible and sustainable. In addition to this, CSR also takes effort to aid company to attain the Triple Bottom Line (TBL) of profit, people and planet which help them to function efficiently, because shareholders are aware of the single bottom line of figure and their profitability. CSR is not only limited to human right standards, labour and social security arrangements but also conditions like weather change, sustainable management of natural resources and customer protection.
In India, CSR can be considered to be started pre-independence when Mahatma Gandhi kindle the concept of trust and altruism where were already extensively present in the culture of Indian people. Facilities such as dharamshalas for travellers, panjrapols for animal health, Ghats near the rivers and schools for downtrodden were examples of this approach. While after independence, Prime Jawaharlal Nehru model of Social responsibility which was more on comprehensive or all-embracing state driven policy were overplayed as the state started involving them in every aspect of life, which shows us failure of these efforts in the state which can be experienced in the seven decades after independence
But now the scenario has changed, the government is now trying to opt private sector through “mandatory trusteeship” rather than restricting itself to the all-embracing policy which was based on economic logic. As per as new company Act of 2013, if the PBT i.e. profit before tax is at least 50 million or a net worth of at least 5 billion or a turnover of at least 10 billion, then the company has to spend 2% of its average net profit before tax of the previous three years on all the activities concerning to the CSR.
As directed in the new company act of 2013, company has to create new committee, sets its objectives, track activities and record the same in the company’s financial statement. The Act also encompasses activities such as training, health, sanitation and environmental stability but an important point is to keep in notice that all the CSR spending must be on external stakeholder i.e. not on the same company employees, or the CSR activities should not be in the same area of operation of the company or the same area in which company is erected. In addition to this, the companies can contribute to state or central government fund such as the Prime minister’s National relief fund. It is evident that the companies have already been engaged in CSR activities and creating there company’s foundation, while some of the few are spending more than 2% of their net PBT on activities related to CSR. But the companies has to take care that the spending should be on external stakeholder or else they have to pay more than 2% of their PBT.
While the Ministry of state affairs which was expecting an annual expenditure of 10000-12000 crores on CSR activities in the year 2014-15, however the actual figure was only half of that of expectation. This implies that the companies are not spending their 2% of their PBT and are not complying with the act. As it is mandatory to show the CSR spending in financial report but there are no penalty if it is not done, so the government should take measure to take in account the CSR spending. CSR spending can be engaged with non-government organisation that helps in social, developmental and educational activities of the society.
In the short-run, while the companies can be engaged in many of the CSR activities, but it should mainly focus on only one of the three different channel of TBL activities, while in medium to long term, companies can engaged in two channels of TBL activities. Like improving efficiency of any of the organisation can lead to energy conversation which in turn will help to save costs as well as sustainability. Infosys Ltd is one such example. The Third channel of TBL activities is to develop shared values among vendors and supplies. For example Jain irrigation system ltd help farmers in irrigation with the help of drip irrigation technique which in turn produces quality agricultural product, resulting in created shared value for the company as well as farmers. It also prevents environmental degradation as well as promoting water conservation.
For companies who are involved in second and third channels of TBL activities, they require time to develop channel into the list of acceptable CSR activities. Despite this, the company can engaged in all the three activities which can help them to create a brand image, shared values and protect environment. These three channels help them to proceed in right direction so as promote their profit, improve people’s life and planet protection. While the CSR and TBL mainly concerned with concerned with large scale industries, majority of Indian economy depends upon small and medium enterprise (SME’s) which accounts for 40%of India’s export and 45% of manufacturing output and also 10% of India’s GDP. While more than 100 SME’s are listed on NSE and have profit more than 50 million, they should be involved in CSR activities.
SME’s act as source for entrepreneurship and hence from all three perspective of TBL, SME’s also have to instil social enterprise initiative. Till the time there are not included in CSR they can coordinate with large companies, also SME’s can comply with its requirement by contributing to Prime Minister’s national relief funds and other government funds.
This article has been authored by Swapnil Zunke from IIM Kashipur
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