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Published : Tuesday, 30 June, 2015 12:26 PM
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By making the corporate social responsibility (CSR) legally mandatory for companies doing business in the country, India has uniquely contributed the idea that businesses possess a social conscience and not just aim for revenue maximization. What may sound completely absurd to noted economist Milton Friedman who mocked the idea of CSR altogether, the Section 135 of the Companies Act, 1935 has given a firm legal push to transform businesses’ voluntary participation into enabling inclusion in societal development.
While the practice of CSR is not new to companies in India, the Act has brought more companies into the fold and may introduce best practices to make CSR-related governance more transparent and effective. Take for instance, the law requires companies to set up a CSR board committee, allocate 2% of net profits in the last three years to CSR. These will be reviewed at the end of each financial year by the board’s director to ensure compliance. Moreover, the law will apply to a minimum of 6,000 companies and their CSR commitments can amount to as much as 20,000 crore rupees.
With the dwindling government support for many social welfare schemes and chronic issues like corruption, leakage, and inept work attitude plaguing governance of these programs, CSR could make a significant difference in creating social capital. Moreover, it will inculcate a culture of CSR among corporations and redistribute the wealth of society for the betterment of all stakeholders.
Most importantly, recipients as partners in progress will push the idea of benevolent capitalism and in general enhance the respect for corporations. An expansion of CSR-related activities, its management, implementation and evaluation opens another avenue for job creation for the country’s millions of educated youth.
CSR By Fiat
An alternative narrativehowever adopts the view that “CSR by fiat” defeats the purpose and legally binding commitments will lead to forced philanthropy, a tick-box behaviour, tokenism or corruption, and masking of data to avoid compliance.
Industrialists like Ratan Tata, AzimPremji and several others renowned for their philanthropic activities have reportedly denounced binding CSR commitments. In fact, critics argue that instead of just throwing money at various charities via philanthropic funding, corporates should identify their strengths to make an impact.
Microsoft founder Bill Gates has spoken about “creative capitalism” and companies becoming agents of transformation and change in the society. This approach is far better than economist Milton Friedman who mocked the idea of business having a social conscience and instead asserted that their only focus should be on profit maximization.
To Friedman, CSR and profit maximization are fundamentally at odds with each other. CSR only ever can be an adjunct to the main purpose of the business.
Integrating Sustainable Development
While the debate rages on, the new concept of corporate accountability that aims to transform businesses by integrating sustainable development into business practices is finding many takers. To its supporters, CSR is dead and at best a partial solution to create an illusion of responsibility.
Corporate accountability, on the other hand, encourages businesses to act responsibly in their long-term interest to promote cleaner technologies, reduce environmental degradation and meaningful societal contributions. It calls for pushing creative capitalism, creating transparent processes for project implementation, and partnering with civil society groups in evaluation and impact assessment.
Although companies in India will have to abide by the legally binding provisions, but they can still make a huge impact and difference in encouraging new thinking and best global practices to do business with sustainable development.
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