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Educational, Social

Corporate social responsibility: Should govt force cos to spend or should companies volunteer?

What are a company’s social responsibilities and why must a company acknowledge social responsibilities: these questions are brought once again to the fore by the tabling of the Companies Bill, 2011, in Parliament this week.

Among a large number of changes to the original Companies Act, 1956, plus a number of amendments to the Bill as proposed in December 2011, the new Bill proposes that companies worth $100 million or above or meeting other similar standards, would need to provide explanation if they failed to allocate at least 2% of their annual net profits towards activities deemed by government to be acts of corporate social responsibility. To be sure, this provision has not been welcomed by industry.

Amidst the many voices that are for and against this provision, it would not be surprising if we lost sight of the issue at hand. Government has not sought the compulsory allocation of 2% of net profit towards corporate social responsibilities; it has sought explanation for non-allocation, if any. A good explanation could well be that the company is meeting its social responsibilities via a range of ongoing business activities, rather than via separately-earmarked funds.

So where does that leave us? A plausible outcome could be that companies begin to educate themselves on the scope of social responsibilities and then talk their way through these arrangements, and spend their money pretty much as they currently do. In that case, we may be left with the proverbial storm in a teacup.

Government intervention in order to strike a better balance between the roles of government and businesses in the interests of the citizens, is a consequence of globalisation – the provision of a level playing field for market players, by containing government ‘sprawl’, distinguishing the role of government from that of business – now no longer national, but global business. Developing appropriate regulation and ensuring compliance are the chief responsibilities of government in this context.

When government tries to force companies to be socially responsible, it treads on thin ground. The reason is that ‘social good’ is an elusive value and often beyond the purview of both governments and businesses. Government can reward companies for behaving supportively with regard to national policies and priorities, as, for example, the Prime Minister’s 10-point Social Agenda, but it is doubtful if it has the authority under the accepted jurisprudence to mandate such behaviour.

Instead, by way of demonstrating their responsibility, government may ask companies to quantify and state their environmental, social and economic impacts, along established principles and via accepted procedures – and these do exist; and then seek an account of the mitigative measures planned and executed.

Positive steps amplifying benign social, environmental and economic impacts of business deserve a pat on the shoulder, but such behaviour is rewarded mainly by reputational gains, customer preferences and investor behaviour, less by government order.

Such a differentiated approach would require a higher degree of engagement with the issue of corporate responsibilities, a greater degree of sophistication in our common understanding of what indeed are the responsibilities of business and how far do they extend.

Courtesy:

The Economic Times

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Discussion

26 thoughts on “Corporate social responsibility: Should govt force cos to spend or should companies volunteer?

  1. This is a slippery slope especially with the number of governments who use the excuse of social responsibility to steal private and corporate property.

    Posted by Richard Leeds | May 27, 2012, 9:18 am
  2. The eternal question has been and still is: Is CSR about charity? Asking or forcing companies to pay so much into a CSR fund would be giving a license to businesses to move away from their social and environmental responsibilities. Whereas, asking “companies to quantify and state their environmental, social and economic impacts, along established principles and via accepted procedures” should be the norm adopted to ensure CSR means what it was intended to mean.

    Posted by Venkatasamy Ramakrishna | May 27, 2012, 9:19 am
  3. No – government does not have the responsibility to force its values on corporations. The owners and/or board of directors determine their social responsibilities to society. They started by creating jobs, paying taxes, etc.

    Posted by Gerald T. Hannah | May 27, 2012, 9:20 am
  4. Nothing works without fear or self interest (greed). Companies should be FORCED. We all get free air from this planet. Just imagine ,if one does not get air for 3 mins. Well brain dead. still how many of us care to give back to this planet. All natural resources are from this planet, how much do we give back.The only answer is ..FORCE

    Posted by Rana Gajraj | May 27, 2012, 1:21 pm
  5. absolutely agree, and the social it would be responsible for what?
    i mean one has to have true, if genuine, multi inner vocation and hopes and sense of duties equally thought and respectful of all system not lying on the killing on whatever is picked on or become weak by the harrassment collectively ensured or observed and let die out of the simplifi-faction that makes a world raped, sucked, and parodied. our caricature of a society.

    Posted by inthenameofhumanrights-duties | May 27, 2012, 4:27 pm
  6. Corporate social responsibility is alive to the grass root NGO for building the nation that should reach the poor to reduce poverty and uplift them to become stable in society by find reasonable jobs. But is there any system that will wipeout poverty, disease, unemployment and environmental friendly system. If it is there please let me know.
    The social responsibility will neverever be positively achieved. There will always be some in need of social assistance. Nevertheless let us begin. no ? asked.

    Posted by Paul Ponniah | May 27, 2012, 10:19 pm
  7. I am always surprised when it is assumed companies will exercise some sort of ethical action that may reduce their profits. Unless forced, they wont!That’s why we have been locked into using petrol rather than alternatives, that;s why we are seeing cancers increase. Why are babies born with their intestines outside their stomach’s in beautiful Northern NSW? Why, it’s from the pesticides the macadamia farmers use, that has run into the ground water. But the people must prove the danger, the onus is not on the companies needing to prove their saftey! Or also there are the ‘captured’ interests such as the the Australian Pesticides and Veterinary Medicines Authority (APVMA) who are a lackey to the polluters.
    http://www.wwf.org.au/?3401/Pesticides-watchdog-approves-toxic-Reef-chemical

    Posted by Julia Law | May 29, 2012, 4:55 am
  8. Just a side note, there is a forced CSR-contribution paid by companies, it’s called “tax”. It is used by governments to, amongst others, make roads, pay for schools, and clean a company’s negative environmental side effects. In my opinion, by definition CSR must be something that is linked to a company’s core activities. Putting money in a jar that can used for anything is in no way linked to what a company actually does, and is therefor not CSR. I wonder if it would count for the 2% line though.
    If we are talking about a 2% CSR-allocation within the company itself, that’s just useless. Most largest companies in the world easily make that 2%, by renaming some things. A lot of new business ventures can be dubbed CSR as well. “Opening an oil-well in Nigeria”… hm… no, let’s call it “creating job opportunities to battle poverty in rural Nigeria”. Pointless. Who says this is not CSR? Build a school next to the well and you can be sure that the entire business can be called CSR, and you’ll be considered “good practice” as well, and use this CSR-sort of thing as a marketing tool. And what about the actual influence on the world? Let’s say a gun-maker makes the 2% CSR mark. And the company that makes all organic clothes (without using child labour or underpaid workers) does not. So the organic company would have to pay a fine and the killers do not? There is no way that such a law could work in reality.
    How about fining negative effects instead…. although I don’t think that will ever happen. Companies have too much power in the lobbying world.

    Posted by Frea Haandrikman | May 29, 2012, 1:06 pm
  9. It is the same all over the world. There are signs that we have reached a stage where corporations, but large and small, control governments. Maybe our present form of governments (democratic or not) do not suit people and planet anymore. Right now no business will reduce profit for people and planet. Quite the contrary. We have seen through many discussions, and in real life, the greed of those in business to accumulate money. We must have reached a stage where alternative ways of managing resources have become necessary.

    Posted by Venkatasamy Ramakrishna | May 29, 2012, 2:44 pm
  10. I am always surprised when it is assumed companies will exercise some sort of ethical action that may reduce their profits. Unless forced, they wont!That’s why we have been locked into using petrol rather than alternatives, that’s why we are seeing cancers increase. Why are babies born with their intestines outside their stomach’s in beautiful Northern NSW? Why, it’s from the pesticides the macadamia farmers use, that has run into the ground water. But the people must prove the danger, the onus is not on the companies needing to prove their safety! Or also there are the ‘captured’ interests such as the the Australian Pesticides and Veterinary Medicines Authority (APVMA) who are a lackey to the polluters.

    Posted by Julia Law | May 29, 2012, 2:45 pm
  11. Maybe a promotion/education program to people to demand CSR and corporations to WANT to do it wouldn’t be amiss. I’ve worked on a few such programs and they DO sway viewpoints some, but the question is “How far?”

    Posted by harry jones | May 29, 2012, 2:47 pm
  12. Companies have responsibilities to employees, customers and share holders. Gov’t needs to support the private sector (creator of sustainable jobs) and get out of the business of selecting winners and losers. Let capitalism work. That will create jobs, generate more tax revenues and get people back to work. Everyone’s boat will rise. We need to encourage the right behavior and not create a dependent and entitlement society

    Posted by Rob Agar | May 29, 2012, 2:48 pm
  13. True, thre is a strong possibility that the financial business case or the business case for Responsible Business has not been properly communicated. There are a number of frameworks available that prove how Responsible business leads to an increase in financial performance. In the Indian scenario, the websites of most companies talk mostly of dispersed philanthropy or perepheral philanthropy. Companies have to first realize what Responsible Business really is, there has to be a move away from just charity or philanthropy, which is good but does not touch the soul or character of the organization as Responsible Business.

    Posted by Vijay Kapur | May 29, 2012, 8:30 pm
  14. We can’t legislate attitude or passion unfortunately. As long as there are shareholders, the Financial Business case for Responsible Business must be made. That is what I think has been poorly done over all.

    Posted by Rad Dockery | May 29, 2012, 8:31 pm
  15. CSR or Responsible Business as I prefer to call it should not be enforced, Responsible Business is not the other department on the other side of the floor, it has to be built into the company not bolted on. It has to be part of an organizations values. You cannot force values or responsible behaviour on companies, it has to come from within or one will probably have another enron or satyam , where every thing will look perfect from the outside but we all know what happened. Business has a responsibility to society , it cannot operate in isolation. What I think is required is the proper communication of Responsible business and its benefits to companies.
    Posted by Vijay Kapur

    Posted by Vijay Kapur | May 29, 2012, 8:32 pm
  16. Rob Agar: are you actually reading the opinions expressed here, or just plunkin on that ole one-stringed bango: “No regulation = wealth for some”

    Posted by Julia Law | May 30, 2012, 4:29 am
  17. Corporate responsibility or for that matter anything else has to be mandated by the Government only when business and the rest of the society are viewed as separate entities. In reality, executives and working people are all part of the whole.They are the producers, sellers and consumers. And yes many consumers are also the private investors in business.

    Businesses that see themselves as members of a society regulate themselves by incorporating social responsibility in their corporate culture or through industries self monitoring themselves by a code of ethics. However, when conscience is absent, under misguided concepts,someone has to step in. The danger of letting Government step in is that it will create a whole bureaucracy to monitor and measure and it will require businesses to be in compliance so they have to set up a bureaucracy within.

    Besides, companies can take on social responsibility beyond philanthropy,by acting responsibly in the first place by seeking out green technologies,controlling emission, avoiding misuse or abuse of precious resources, being inclusive in hiring practices, participating in raising education in population, treating employees as humans rather than a cog in the big production wheel and generally working for the benefit of the land and people where they happen to be.

    While percentage of income is one measure, in a corrupt environment anywhere, one has no way to know if the funds indeed are used toward fulfillment of responsibility that benefits the society,or community as a whole.

    I think the onus is on the business to prove that it does not need big brother to watch it by demonstrable and very visible result. When done right,social responsibility is a win-win game.

    Posted by Pam Mehta | May 30, 2012, 3:01 pm
  18. Pam, your ideas are commendable. Nevertheless, if we draw a comparison about the mix of philosophies and personalities as can be seen by the diversity of replies above, to a similar mix within the staff of companies, it is not surprising that things get shelved, ignored or passed down the line so that, as happened in Mount Gambier, drums of dioxin and also, from another company, drums of CCA (copper-chrome-arsenate) were simply tipped down limestone sinkholes, to be there to poison everybody’s groundwater. Governments do not possess the funding to keep the buggers honest, and there is also the dilemna faced by companies whose bottom line must be profitability to legislate or proscribe their own unsafe practices.

    Posted by jalapeno | May 30, 2012, 10:41 pm
  19. There need to be a Govt appointed Body to monitor CSR, whether in Govt. or Private company. I question the introduction of 80G against donation. Why should 80G or tax benefit be given to these companies against CSR, since they are parting with very little money (part of the profit) for the benefit of the less fortunate.

    Posted by Santanu Bhattacharjee | June 3, 2012, 8:38 am
  20. Cos should Volunteer, NOT be forced by the govt.

    Posted by Stephen Russell | June 3, 2012, 8:38 am
  21. Human beings are apathetic to many things not by Nature! They are apathetic till they spend sometime to realize the “special ” needs of others! The knowledge of others’ suffering always exists but the ” realization” does not exist. It is important to create such opportunities for everyone of us to ” realize” and whoever has the power and position among us will do the needful automatically! Enforcement of any moral values is a very low form of societal development! One thing to remember is we live only once and should do so with least impact to others. We the individuals make the Corporate and hence the change has to come from within! For every enforcement there will be a consultant to tell us how to get around for a fee!

    Posted by Krish Mani | June 3, 2012, 8:39 am
  22. CSR is just a massive con-job. And any government bill to enforce it is a waste of time, effort,and money.

    If I was a corporation, I’d gladly and hurriedly agree with the bill, pay my 2% and pay my PR company another 4% to trumpet it to the world. Meanwhile I’d happily continue in dodging tax, polluting the environment, exploiting workers and otherwise delivering shareholder value.

    We don’t need bills enforcing Corporate Social Responsibility, we need bills enforcing Corporate Societal Accountability.

    Posted by John Lambie | June 3, 2012, 8:39 am
  23. Perhaps the government could put some basic standards of supporting community development as in some countries is done for culture – in the case of Panama, we still don t have that legal frame for companies to support local artists but consider it a good way to balance economical development and cultural development

    Posted by Maria Gilma Arrocha | July 10, 2012, 9:04 pm
  24. CSR should be voluntary, and governments must not get involved – particularly where governmental corruption is rife. Somewhere along the line CSR will be used by some inventive, corrupt government employee/minister to use the CSR to his or her own gain. Problem is also that CSR creates a sense of entitlement by some of the people that benefit from such schemes. There must be a better way to do things i.r.o. CSR

    Posted by Nicole Petyt | July 10, 2012, 9:05 pm
  25. No. To force is communism. To inspire to freely give is DEMOCRACY, the choice of the FREE world..

    Posted by June Narber | July 10, 2012, 9:47 pm
  26. Tax benefit is only an incentive to force the companies to look at CSR–may be indue course of time when other mandatory processes fall in place this enabler could be reviewed.As for now PSE”s do feel that this makes managements take a positive call on CSR.It also enables the concerned process owners to come up with initiatives/proposals fearlessly -some of these could indeed be worth it.

    Col Mahapatra has a point-to ensure that CSR by Govt. PSE’s are effectively implemented.As of now the normal mode of CAG,Internal audit,Vigilance/CBI etc also cover CSR inGovt.Well you can guess the end result of such deterrent rules.

    The subject of CSR is one which appeals to the conscience not as a need to follow type as in any other profession-like finance/sales/production etc.More than the monitoring there is a need to mandatorily ,if necessary frame a pledge for CSR professionals-a la the medical profession-monotoring of the deeds and the outcome of such examinations are a part of adminstrative mechanism.But forst there is a need for all CSR related people to get into a sort of “INTEGRITY PACT”–as this is an issue related to sustaining the eradication of deprivity and poverty.

    Posted by ramnarayan(R) shankar | July 10, 2012, 9:49 pm

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