Coercive social responsibility - The Economic Times Page 1 of 4

Indiatimes | The Times of India | The Economic Times | More

Budget 2011 Brought to you by

Opinion
Home Budget 2011 News Markets Personal Finance Tech Jobs Opinion Features Environment

Your Say Comments & Analysis Cosmic Uplink ET Debate Editorial Opinion Poll Columnists Interviews QnA

You are here: Home » Opinion

18 FEB, 2011, 03.36AM IST, SATVIK VARMA,

Coercive social responsibility

Story Comments
Read more on » csr | corporate social responsibility

The Parliamentary Standing Committee on Finance has

Share Tweet vote proposed mandatory corporate social responsibility
now (CSR) by companies as part of changes to the
Companies Bill, 2009.

It says every company having a net worth of 500 crore or

more, or a turnover of 1,000 crore or more, or a net profit
of 5 crore or more, during a year shall be required to
spend every year at least 2% of the company's average
net profit during the three immediately-preceding
financial years, on CSR activities of the company's
choosing.

If a company does not have adequate profit or is not in a

position to spend the prescribed amount on CSR, the
directors of such company are required to make a
disclosure and give suitable reasons in their annual
report, with a view to checking non-compliance.

The recommendations do not detail what constitutes

spending on CSR. While this by itself will hinder
implementation of a mandatory CSR policy, it is also
recognition that there can't be a universally-prescribed regulatory regime for CSR.

The classical view is that the purpose of corporations is to make money. Corporate profits belong to the
shareholders and requiring managers to pursue socially-responsible objectives means managers are spending
money that belongs to others.

http://economictimes.indiatimes.com/articleshow/7518928.cms 2/18/2011
Coercive social responsibility - The Economic Times Page 2 of 4

In contrast, the liberal view prescribes that a business should be sensitive to potential harms of its actions on
various stakeholders, consider the interest of all parties affected and use its vast resources for social good. In
the middle lies the trusteeship model: businesses should manage their enterprises as a trust held in the interest
of the community.

Starting with mid-1990s, as corporate profits soared, businesses realised that they had certain societal roles to
fulfil. This led to the evolution of the stakeholder model wherein companies measure their performance using
the 'triple bottomline' approach, taking into account their ecological and social performance in addition to the
financial, evaluating actions in terms of People, Planet and Profit.

The World Business Council defines CSR as "the continuing commitment by business to behave ethically and
contribute to economic development while improving the quality of life of the workforce and their families as
well as of the local community and society at large". Accordingly, corporate responsibility involves a
commitment by a company to "manage its role in society as a producer, employer, marketer, customer and a
citizen in a responsible and suitable manner". Rationally, these commitments should not be prescribed by law.

It is most practical for corporates to adopt a strategy embedded in their day-to-day business operations and
integrated with their core business objectives. Examples include Dabur's efforts towards sustainable cultivated
sources for herbal ingredients, reducing the strain on natural herbal habitats, and the BPO facilities set up by
the JSW Foundation at JSW's remote locations to provide an alternate livelihood to the local population.

There are few examples across the globe of a legally-mandated CSR obligation. In 2009, the ministry of
corporate affairs had issued voluntary CSR guidelines for Indian corporates, indicating some core elements for
Indian businesses to focus on. These guidelines attempted to clarify that charity and philanthropy are not CSR
and acknowledged that "CSR activities are purely voluntary" and include "what companies will like to do
beyond any statutory requirement or obligation".

What has changed in the last year for the shift from voluntary guidelines to mandatory legislation? Also, is a
mandatory spend on CSR not an indirect form of taxing corporate profit? In such circumstances, the opposition
by industry chambers to a mandatory spend appears justified. The expectation that companies receive
incentives for their CSR spend is also reasonable. But doesn't this negate the whole idea of social
responsibility?

The ambiguity on what constitutes spending on CSR, the manner in which the amounts should be deployed
and whether corporations can give their mandatory spend to a trust or foundation run by the business itself
can, in fact, lead Indian businesses ending up spending less than what they currently do on CSR.

What is, instead, needed is greater advocacy relating to what constitutes CSR, how itcan be implemented and
aform of regulatory mechanism that ensures commitment from the top management. Eventually, the
commitment has to come from within. A dialogue on social responsibility cannot be enforced with an iron hand
since it can potentially deter corporations from doing the social good that they may otherwise undertake
voluntarily.

(The author is an advocateand corporate counsel)

http://economictimes.indiatimes.com/articleshow/7518928.cms 2/18/2011
Coercive social responsibility - The Economic Times Page 3 of 4

NEXT STORY

More inflationed, than infla...

There are no comments on this article yet.

Why don't you post one?
Comments are moderated and will be allowed if they are about the topic and not abusive.

Your comment 5

6
Characters remaining (1500)

To post this comment you must log in.

Log In/Connect with: More Login Options

or
Fill in your details:
Name Email
Will be displayed Will not be displayed

Location
Will be displayed

Share this Comment:

c
d
e
f
g Post to Facebook c
d
e
f
g Post to Twitter

Please answer this simple math question.

8+3=

http://economictimes.indiatimes.com/articleshow/7518928.cms 2/18/2011
Coercive social responsibility - The Economic Times Page 4 of 4

Get a Quote
Browse Companies
Type Company Name A B C D E F G H I J K L M N O P Q R S T U V W X Y

Home | News | Markets | Personal Finance | Mutual Funds | Infotech | Jobs | Opinion | Features | Videos

Other Times Group news sites
Times of India | इकनॉिमक टाइ स
ઈકોનોિમક ટાઈ સ | Mumbai Mirror
Times Now | Indiatimes
नवभारत टाइ स | महारा टाइ स
Living and entertainment
Timescity | iDiva | Bollywood | Zoom
Networking
itimes | Dating & Chat | Email
Hot on the Web
Hotklix | Restaurants in Mumbai
Buy Mobiles | Madhuri Dixit
Send Flowers to India
A Day In The Life of India

Services
Book print ads | Online shopping | Business solutions | Book domains | Web hosting
Business email | Free SMS | Free email | Website design | CRM | Tenders | Remit
Cheap air tickets | Matrimonial | Ringtones | Astrology | Jobs | Property | Buy car
Bikes in India

About us / Advertise with us / Careers @ TIL / Terms of use / Privacy Policy / Feedback / Sitemap / Code of Ethics

http://economictimes.indiatimes.com/articleshow/7518928.cms 2/18/2011