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.