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 CSR approach is holistic and integrated with the core business strategy for addressing social and environmental impacts of businesses.
- CSR needs to address the well-being of all stakeholders and not just the company’s shareholders.
- Philanthropic activities are only a part of CSR, which otherwise constitutes a much larger set of activities entailing strategic business benefits.
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:
- Net worth in excess of Rs. 500 crore
- Turnover of Rs. 1,000 crore or more
- Net profit of Rs 5 crore
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:—
- Eradicating extreme hunger and poverty;
- Promotion of education;
- Promoting gender equality and empowering women;
- Reducing child mortality and improving maternal health;
- Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases;
- Ensuring environmental sustainability;
- Employment enhancing vocational skills;
- Social business projects;
- Contribution to the prime minister’s national relief fund or any other fund set up by the central government or the state governments for socio-economic development and relief and funds for the welfare of the scheduled castes, the scheduled tribes, other backward classes, minorities and women;
- Such other matters as may be prescribed.
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.
- Industries, expectedly, believe that it is an additional burden and will hurt their ability to invest (Venkatesan: 2013).
- 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).
- 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.
- should broaden the set of stakeholders of the businesses to explicitly include other societal actors beyond the shareholders
- should define the processes that companies should use to fulfill their responsibility towards societal stakeholders rather than specifying the level of expenditures and the activities on which such expenditures should be incurred. Such an approach has greater potential to improve the accountability of businesses towards the larger society that they impact.
- CSR policies must be determined organically, through demand-driven consensus. Instead of being the mandate of high-level committees, company specific CSR policies should flow from a transparent interface between community stakeholders and corporates.
- employee benefits must not be passed off as CSR
- voluntary policies that ensure a stakeholder approach to CSR is followed by corporates already exist and must be strengthened.
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.
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