Friday, 23 March 2012



In earlier days, companies viewed their business only as an economic activity and believed that a company has nothing to do with human welfare or prosperity of the society. When competition entered the domestic and global markets, the business houses began to realize the fact that a company cannot operate profitably in a competitive environment unless it satisfies to the best possible manner, the expectations of society including consumers. As clearly pointed out by Sir Adrian Cadbury, - the continued existence of companies is based on an implied agreement between business and society and companies are licensed by the society to provide the goods & services which society needs. He also opined that the essence of contract between the society and the company is that the company shall not pursue their immediate profit objectives at the expense of the long-term interests of the community.

Role of  Business
It produces goods and/or services utilizing the available resources and provides the same to the consumers in the society for a price.
It generates employment oppurtunities for numerous persons and pays them salaries/ wages
It earns profits from business and pays various taxes, excise duty, customs duties etc to the Central & State Governments. The company uses its investments and retained earnings to grow further.
It often helps in modernization of  agriculture and improvement of productivity
It contributes to GDP and per capita income of citizens of the country through higher industrial output.
It may contribute tremendously to the export earnings of India.
It helps an economy to attain self-sustaining growth.

A business has social, economic, ethical and moral responsibility towards its stakeholders. The company has a continuing commitment to give back what it has taken from the society. Where a company is able to achieve and maintain a balance of economic, environmental and social imperatives to the best possible manner, one can say that such a company has succeeded in conducting business in a socially responsible manner. Thus, in simple words, any activity which emerges out of ethical and moral commitment towards the society and which is capable of or intended to create a positive effect on the society would be a CSR activity. However, each CSR initiative should be able to address the issues arising out of business operations of the company. Many of us may be aware of the CSR activities undertaken by Microsoft. Microsoft works closely with international organizations such as the World Food Programme, Save the Children, and Mercy Corps to provide technology-based development assistance through the HEART (Humanitarian Empowerment and Response through Technology) program.

Every company is expected to formulate and implement CSR policies that include the following -
·        Employees – employee programmes/ discussions/ workshops that instill awareness on health, technology, sustainability, development of skills, motivation, personality development etc
·        Industrial Health & Safety – should be able to ensure sanitation and cleanliness at work place, healthy habits, accident support, occupational health etc (ensure compliance with Act in this behalf)
·        Industrial resource and infrastructure- Conservation of power, optimum utilization of resources, substitutes for depleting materials etc
·        Manufacture - waste recycling & management, energy efficient  systems, related health  issues etc
·        Environmental sustainability- soil and water conservation, minimizing depletion of non-renewable resources, ecological balance, conservation of bio diversity, drinking water, reducing emissions etc.
·        Poverty eradication e.g. House for the poor, Health  insurance for poor etc
·        Educational initiatives/ initiatives at school level- maintaining schools, providing scholarships, other students programmes. E.g. food & amenities for poor students, forming waste recycling clubs at schools. The manufacturers of ‘Tiger’ biscuits used to supply their ‘iron fortified’ glucose biscuits at schools.
·        Human Rights & Women empowerment programmes
·         Employment opportunities for unemployed youth- vocational training, technical training for developing skills of freshers.
·        Development of rural areas/ city beautification- road repairs, sanitary blocks, public road and bridges beautification, repair & maintenance of drainages, solar power systems. E.g. Sponsoring solar light systems, wind farm, parks/ trees on roadsides etc
·        Public health- medical camps, hospital, awareness programmes, help in natural calamities etc
·        Assistance in Govt initiatives.

Benefits of adopting CSR policies

The following are the known benefits of being socially responsible towards the society

-         Company interacts with the society and uses the resources in order to produce goods/services for the society. It deals with consumers, govt, non-govt organizations, shareholders and other stakeholders. Business houses exist with their support and such long term relationship can be maintained only through socially responsible behavior.
-         Helps in gaining social power and good image in the society.
-         Through social responsibility behavior, business may be able to achieve commercial and economic objectives.
-         Usually, big corporates employ managers who are creative, dynamic and knowledgeable and they may be able to generate better ideas than the govt authorities. Such ideas may help in achieving economic objectives.
-          To gain clean/ good image in front of the society and govt authorities.

Criticisms/ Opinions against CSR

Many business experts and corporate has the following criticisms against CSR

-          There is lack of clarity in what activities are covered by CSR. Concept is not clearly defined or is defined in a vague and volatile manner. Some think of it as an act of selfless giving or self denial. Some consider it as conducting business without causing harm to the society.
-          Adoption of CSR initiatives may not be profitable & viable for unsound/ financially weak companies. It is costly.
-          Companies take up production as an economic activity to gain profits and they are not social service organizations.
-          CSR initiatives may result in wastage of valuable managerial time and efforts. Decision making process will become more complex. So, its not wise to mix philanthropy with business motives.
-          Managers and professionals have competence and expertise only in their relevant areas.  Diverting their knowledge and ability towards formulation of CSR programmes may make them stressed and may affect their motivation levels.
-          Some people in the society may not like business houses doing the job assigned for social service organizations and government.  They view corporates as money making machines.
Government officials may protest in such cases. Some business men are of the opinion that government may collect tax/duty/cess on company profits for socially responsible activities instead of making it mandatory for companies to organize CSR programmes.
-          Some companies may be polluting the environment; still they may be successful in organizing CSR programmes. Thus, CSR activities act as a curtain for hiding their wrong doings.
-          Some industrialists criticize mandatory implementation of CSR on the argument that developed countries has not made it mandatory.
-          Some industrialists are of the opinion that CSR should not be made mandatory as the concept is not clear. They require government to state whether it covers corporate philanthropy/corporate citizenship/environmentally sustainable business.

 CSR – Concept under Companies Bill 2011

Indian companies are growing day by day as providers of a wide range of goods and services at international markets and creators of employment opportunities to numerous persons. These factors persuaded Ministry of Corporate Affairs to review and redraft existing Companies Act, 1956. The companies bill has tried to consider the suggestions given above to a possible extent. The proposed companies bill 2011 contains provisions relating to ‘Corporate Social Responsibility’ under Section 135.  Schedule VII of the companies bill gives a list of the CSR activities as given below-

 (i) eradicating extreme hunger and poverty;
(ii) promotion of education;
(iii) promoting gender equality and empowering women;
(iv) reducing child mortlity and improving maternal health;
(v) combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria  and other diseases;
(vi) ensuring environmental sustainability;
(vii) employment enhancing vocational skills;
(viii) social business projects;
(ix) contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government or the State Governments for socioeconomic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and
(x) such other matters as may be prescribed.

Corporate Social Responsibility Committee (CSR Committee)

As per Section 135 of the proposed companies bill, a CSR committee shall be set up by 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 FY . Other provisions include the following-

Ø      The CSR Committee shall be the committee to

a.       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 Schedule VII of companies bill 2011.
b.      recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and
c.        monitor the Corporate Social Responsibility Policy of the company from time to time.

Ø      CSR Committee shall consist of three or more directors where at least one director shall be an independent director.
Ø      Board shall approve the committee recommendations and ensure that activities recommended are properly implemented
Ø      The financial statement of the company -Board's report shall disclose the CSR policy and composition of the CSR Committee.
Ø      CSR policy to be placed in the company website
Ø       The Board shall ensure that the company spends in every financial year, at least two per cent of the average net profits of the company made during the 3 immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy
Ø      Where the company fails to spend such amount, the Board shall in its report specify the reasons for not spending the amount.
Ø      Amount of expenditure incurred on corporate social responsibility activities shall be shown as notes to P & L a/c.

Environment protection and CSR
The VI th point in the Schedule VII of the Companies bill has included ‘environmental sustainability’, the most debated issue in relation to industrial development. By environment we mean land, water, air, plants, animals and all other living organisms which make up the earth. Pollution of environment means presence of an unwanted/hazardous/wrong matter in wrong quantity at wrong place in the ‘environment’. Smoke/dust/liquid waste emitted to the atmosphere/water may turn out to be hazardous to life of organisms and plants living on the earth and in water. However, Supreme Court’s decision in MC Mehta V Union of India was powerful enough to tackle accidents arising out of tendency of industrial units to discharge hazardous waste into water and air. The decision in the case stressed the need for establishing waste treatment plants to reduce toxic substances in the emissions/ effluents. SC observed that the financial capacity of companies should be considered irrelevant while requiring them to establish primary treatment plants and a unit which cannot set up such waste treatment plants shall not be allowed to continue production. The adverse effect on public on allowing of production by such units should be more important than any inconvenience caused to the management and the labour on account of closure of unit.
But, why these decisions failed to achieve desired results is a question asked by many people including you and me. Some social activists undoubtedly say that extreme corruption by the officials is the reason for environmental pollution.
The concept of CSR has its own advantages and limitations. As a professional and a responsible citizen of India we should be able to see the brighter side. i.e. Benefits of CSR instead of its limitations.  Many company law experts are of the view that incorporation of CSR in the proposed companies bill 2011 would contribute to social welfare and environment protection in India. However, mere compliance with the new provisions envisaged under companies bill or CSR initiatives undertaken to gain reputation alone will not be a complete remedy for the damages caused to the society. As future professionals we should transform ourselves to a socially responsible citizen and take efforts to promise a better earth for future generations.

“Nature  never did betray, the heart that loved her”- Wordsworth.

Note: The views expressed are personal.
Source: ICSI, ICAI study material, web, newspapers.

Prepared by  Victor J. Uruvath,  CS Professional  Programme, Thrissur

Collected by: Santhosh T.T, CS Professional Programme, Thrissur