Corporate Social Responsibility

The Companies Bill (2011) has been enacted recently enacted as the Companies Act 2013, replacing the nearly five-decade-old Companies Act, 1956. This act makes provisions regarding the Corporate Social Responsibility via its section 135.

What is Corporate Social Responsibility (CSR) ?

There is no universal definition and in general terms it is understood as the giving back by the industries to the society.

The Act encourages companies to spend at least 2% of their average net profit in the previous three years on CSR activities.

IF They have any of the following:

Such a company will create a Corporate Social Responsibility Committee of the Board consisting of three or more  directors,  out  of  which  at  least  one  director  shall  be  an  independent  director.    The  Corporate  Social Responsibility Committee shall formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in the schedule VII of the bill.

They will be responsible for preparing a detailed plan of the CSR activities including, decisions regarding the expenditure, the type of activities to be undertaken, roles and responsibilities of the concerned individuals and a monitoring and reporting mechanism. The CSR committee will also be required to ensure that all the income accrued to the company by way of CSR activities is credited back to the CSR corpus.

The Schedule VII has mentioned the activities relating to:—

If the company fails to spend such an amount, the board shall specify the reasons for not spending the amount in its report.

The mandatory CSR requirement has generated considerable debate.

Those in favour of the mandate argue that industry spending on CSR will always be inadequate unless mandated by law. The criticism against the mandate, however, goes in different directions.

  1. Industries, expectedly, believe that it is an additional burden and will hurt their ability to invest (Venkatesan: 2013).
  2. Moreover, they argue that defining the activities that count as CSR stifles the innovative ways in which companies can spend for societal good (Gopalakrishnan: 2013).
  3. Others argue that social responsibility should be assessed based on the way businesses address the social impacts of their core operations, not on the basis of how much they spend on activities unrelated to their core business (Maira: 2013).

CSR and Stakeholders

With the ever-increasing scope and impact of businesses on the larger society, there has been a growing recognition that businesses have responsibility not just to their shareholders but also to other groups such as non-shareholder employees, customers, suppliers, and communities.

In other words, the definition of stakeholders has been expanded to include several other groups that are impacted by businesses. The concept of CSR has appeared to have emerged within this context (Clarkson:1995).

CSR in India has traditionally been seen as a philanthropic activity and concept of sustainable development which is defined by the Brundtland Commission as development that meets the needs of the present without compromising the ability of future generations to meet their own needs”

Arun Maira in his article in EPW makes one important point : 

societal attention is shifting from how business profits are used after they  are  made  to  how  the  profits  are made in the first place.Societies are increasingly demanding explanations of how the 100% of revenues were produced, and not the glowing accounts of the small percentages of profits that were spent on  CSR .

The Companies Act of 2013, to some extent, takes the power of defining social responsibility away from the companies by specifying the activities that companies could consider for the purpose of their two per cent CSR expenditure.

However, this is only “to some extent” because it can be argued that Schedule VII of the Act defines CSR activities so broadly that it gives enough scope for companies to define any activity they desire as a CSR activity.

the legal mandates for participation need to be complemented by other mechanisms that empower communities to have an influence on the process and its outcomes.

Article is created from various sources and the original copyrights rest with them and I am very thankful to all of them for helping me create this article.

More Resources

  1. Ordering Corporate Responsibility
  2. The Companies Bill, 2011
  3. Corporate Social Responsibility (CSR): Meaning, provision in Companies Bill 2012
  4. Defining the Social Responsibility of BusinessesWhose Business is it?
  5. India’s 2% CSR Law The First Country to Go Backwards

  6. A vision of sustainable growth ARUN MAIRA

  7. Looking for good company
  8. Less corporate, more social SAMIR SARAN and VIVAN SHARAN

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