“Corporate Social Responsibility (CSR) ”
As the world is progressing, scams have taken over the economy and India is also not an exception. Where Enron scam gave birth to Sarbens-Oxely Act, Satyam scan raised a few eyebrows about corporate responsibility towards the society. Now we will learn about what corporate social responsibility (CSR) is all about and how it has shifted the paradigm of Indian economy and turned out to be a game changer.
Why do we need CSR?
The first question arises is why we want our corporate to be socially responsible? Aren’t they socially responsible by themselves? If yes, then why do we need to make the CSR concept mandatory for the corporate world around us?
The answer lies in the society norms of a country. For example, Japanese respect “Time” the most. Therefore nation follows the concept of time and if any event occurs beyond the time limit, same person is liable for an answer. Likewise, Australian follows the culture of environment protection. Every product of the country contains an undertaking regarding environment protection. In the similar manner, India is a country where too much difference exists between rich and poor people. Rich people are getting richer and poor people becoming poorer. Such disparity can be reduced only by way of contribution of affluent society towards the empowerment of poor people. Corporate is the main power force area from where we can expect such big contribution in an easy manner. Law is based on the needs of the society and for the benefits of public at large.
Therefore every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute 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. And if any company fails to fall in this bracket for continuous 3 years period, then it has no need to comply with CSR regulations unless it fulfil the requirements of Section 135 of the companies act 2013 once again. It suffices the purpose of natural justice and reducing inequality in the simplest manner.
Every Board of the company needs to make a CSR committee which will guide the company about the amount and way of utilising the amount set aside for CSR activities. Company has to present CSR report along with its financial statements in which it describes how the money has been invested by way of providing education to poor children or any other means as it may think fit. If the company fails to do necessary expenditure on CSR activities which is 2% of average net profits of the company made during the three immediately preceding financial years. The company is liable to answer its stakeholders and the government and society. In this manner, CSR prohibits the secret money which can be hoarded by the board of the company.
CSR as Game changer:-
India is the first country of the world which has made CSR compulsory. Where after Satyam scam many people lost their jobs, stock market crashed down and stakeholders felt helpless as they lost their believe in corporate world. CSR came as new dawn whose transparent mechanism gave the power in the hands of stakeholders to decide how the corporate funds should be utilized.
As CSR is based on philanthropic approach in India and companies are measured on global reporting initiative. Colgate has come in limelight by becoming one of the top 10 companies with the best CSR reputation. Such status symbol surely boosts up the confidence of its investors. Not just Colgate, many other companies have come in limelight and raised the economic bar as soon as the Securities Exchange Board of India (SEBI) mandated to include business development report. Whereas concepts just idealises the imagination, data turns them into reality as a picture is worth a thousand words.
From the above two diagrams, we can easily conclude that CSR expenditure has increased significantly once it has become mandate. In earlier years, where Indian corporate expenditures were less than the foreign expenditures has risen up at a very significant level.
As CS is the backbone of the Company, it can help the corporate by utilising the CSR mechanism more efficiently. Apart from the companies act 2013 there are many global principles and guidelines named as:-
- UNGC :-
United Nation Global Compact which has adopted sustainable and socially responsible policies which focuses on 4 broad areas viz. human rights, labour right, environment ,governance.
- OECD guidelines: –
OECD guidelines were recently updated in 2011 and light upon the principals and standards for responsible business conduct for multinational enterprises.
- Social Accountability International (SAI): SA 8000 Standard
This is world’s first auditable social certification standard which is based on International labour organization (ILO), United Nations (UN) and national law convention. This standard ensures the protection of basic human rights such as child labour, health and safety and discrimination etc.
- The SROI network :-
The SROI network promotes the use and development of the social return on Investment methodology internationally. It is based on social generally accepted accounting principles.
- ISO 26000 : Social responsibility
International organisation for standardisation provide guiding tool about self certification. It incorporates areas like fair operating practices, consumer issues and community involvement and development etc.
The move taken by Ministry of corporate affairs is so welcoming and idealistic as it is best of both worlds. CSR welfare schemes helps in developing the undeveloped and under-developed areas of the country not just in human form but also integrate potential investment form. Substantial rise in the standard not just raise confidence among the stakeholders but also stabilize the economy as a whole. And in India, being a developing country where people are dying of hunger and skill potential is unused due to lack of infrastructure facilities, CSR is definitely a game changer by focusing on Triple bottom Line approach.