Corporate Social Responsibility
While there is no single globally accepted definition of CSR, each definition that currently exists underpins the impact that businesses have on society at large. Although the roots of CSR lie in philanthropic activities of big corporate houses, globally, the concept of CSR has evolved and now encompasses all related concepts such as corporate citizenship, philanthropy, strategic philanthropy, shared value, corporate sustainability.
Since independence, India has been governed by growing disparity amongst the population, with severe differences existing in relation to income, development, literacy, health, sanitation and life expectancy. Globally, an income of less than $1.25 per day per head of purchasing power parity is defined as extreme poverty. By this estimate, about 32.7% percent of Indians are extremely poor. The development of India and its citizens remains imperative to the realization of social and economic development goals set through international organizations.
India has always had a long standing tradition of giving back to the society, with people from the upper strata of the society indulging in philanthropic activities like building schools, hospitals, helping the under privileged and developing their surroundings.
Statutorily Section 135 of the Companies Act, 2013 states that all companies having a net worth of Rupees Five Hundred Crore or more, or a turnover of Rupees One Thousand Crore or more or a net profit of Rupees Five Crore or more during any financial year shall allocate and spend at least two per cent of the average pre-tax net profits of the company made during the three immediately preceding financial years towards its corporate social responsibility policy, which relates to activities undertaken in furtherance of Schedule VII of the Companies Act, 2013(“CSR Policy”).
Along with allocating two per cent of the average net profits, the company must also form a Corporate Social Responsibility Committee of the board which shall comprise three or more directors, out which at least one shall be an independent director. This committee shall be responsible for formulating the CSR Policy that the company will be governed by, monitoring the CSR Policy, allocating expenditure and the dispersion of such amounts to various causes identified in Schedule VII of the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2013 (“CSR Rules”).
The company is also required to prepare a report about the company’s CSR Policy, the CSR committee, and details of CSR expenditure. The company is further required to disclose the contents of its CSR Policy in its annual report and place it on the company’s website in the prescribed manner.
Schedule VII of the Companies Act, 2013 provides a list of activities which may be included by companies in their CSR Policy, which include eradicating hunger, poverty and malnutrition, preventive health care and sanitation, making available safe drinking water, promotion of education, promoting gender equality and empowering women, protection of national heritage, art and culture, training to promote sports, ensuring environmental sustainability, employment enhancing vocational skills, rural development projects, contribution to certain relief funds and funds for welfare of certain classes and contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government. The Central Government may include further activities. The Ministry of Corporate Affairs recently issued clarifications stating that while the CSR Rules state that the activities permitted to be undertaken are as enumerated under Schedule VII of the Companies Act, 2013, the entries must be interpreted liberally with the intent to capture the essence of the subjects in the schedule.
In the event the company is unable to spend the allocated amount for the CSR Policy, the board of the company shall make adequate disclosures in the annual report, specifying reasons for not spending the said amount. While the Companies Act, 2013 does not specify any penalties for failure to spend the allocated amounts under the CSR Policy, not disclosing such non-compliance can make the company liable for fines not being less that Rupees Fifty Thousand but not more than Rupees Twenty Five Lakh, while defaulting officers can be subject to up to three years in prison and/or fines not being less that Rupees Fifty Thousand but not more than Rupees Twenty Five Lakh.
CSR IN INDIA
CSR is not a new concept in India. Ever since its inception, corporates like the Tata Group, the Group, and Indian Oil Corporation, to name a few, have been involved in serving the community. Through donations and charity events, many other organizations have been doing their part for the society. The basic objective of CSR these days is to maximize the company’s overall impact on the society and stakeholders. CSR policies, practices and programs are being comprehensively integrated by an increasing number of companies throughout their business operations and processes. Companies have dedicated CSR teams that formulate policies, strategies and goals for their CSR programs and set aside budgets to fund them.
A more comprehensive method of development is adopted by some corporations like Bharat Petroleum Corporation Limited, Maruti Suzuki India Limited. Provision of improved medical and sanitation facilities, building schools and houses, and empowering the villagers and in process making them more self-reliant by providing vocational training and a knowledge of business operations are the facilities that these corporations focus on.
Aditya Birla Group has been taking part in CSR since as early as 1940. Their projects are carried out under the aegis of the “Aditya Birla Centre for Community Initiatives and Rural Development”, led by Mrs. Rajashree Birla. The Centre provides the strategic direction, and the thrust areas for our work ensuring performance management as well.
The focus is on the overall development of the communities around their plants located mostly in distant rural areas and tribal belts. All of their Group companies like Grasim, Hindalco, Aditya Birla Nuvo and UltraTech have Rural Development Cells, which are the implementation bodies.
The footprint of their community work is across 3,000 villages throughout India. They reach out to more than 7 million people annually. Over 60 per cent of these live below the poverty line and belong to scheduled castes and tribes. The Group spends in excess of Rs.130 Crore annually, inclusive of the running of 18 hospitals and 42 schools.
Similarly Proctor & Gamble’s flagship Corporate Social Responsibility Program “Shiksha” is an integral part of global philanthropy program- Live, Learn & Thrive. This program is in its Eighth year and has helped 280,000 under privileged children access their right to education. The program has built and supported over 140 schools across India, in partnership with various NGOs. “Shiksha” has made a cumulative donation of over Rs 22 Crore towards helping children on the path to education.
A lot of work is being undertaken to rebuild the lives of the tsunami affected victims, and Uttarakhand flood victims. This is exclusively undertaken by SAP India in partnership with Hope Foundation, an NGO that focuses mainly on bringing about improvement in the lives of the poor and needy. The SAP Labs Center of HOPE in Bangalore was started by this venture which looks after the food, clothing, shelter and medical care of street children.
INDIAS REQUIREMENT FOR CORPORATE SOCIAL RESPONSIBILITY
With the implementation of the CSR Policy in India, the government expects to raise between Rs 15,000 to Rs 20,000 Crore annually for the benefit for the social sector, which should go a long way towards alleviating the social and economic environment and in fulfilling the development requirements of an emerging economy such as India.
At present, non-compliance of CSR rule isn’t penalized by the Companies Law, and those unable to spend the stipulated amount can get away with some justification. Under the current law, there’s no mandatory obligation on the company, but a responsibility is cast upon its board members. In case companies repeatedly fail to do so for two or more years, they should be penalized.
The government has made changes to the norms governing expenses on Corporate Social Responsibility (CSR) activities under the new Companies Law. The changes have been made to the Companies (Corporate Social Responsibility Policy) Rules, 2014, through the notification dated September 12, 2014. Under the rules, companies are allowed to build CSR capacities for their own personnel through other institutions provided such expenses does not exceed five per cent of the total expenditure incurred on social welfare activities in one financial year. Providing more clarity for stakeholders, the Corporate Affairs Ministry has said the five per cent cap would include “expenditure on administrative overheads”.
The CSR Policy should be viewed as a positive step as it mandates the much required consciousness of participating in the upliftment of society as a whole.
The management heads and senior people at decision making process of corporate house must understand that their passionate attitude towards people will bring a lot of changes in business of the organisation. Support of local people will strengthen them and will never restrict the growth of corporate due to resentments. Other aspect is becoming passionate towards growth of own people is a divinity we practice. We all wish to be recognised, and rewarded for our good works. Thus corporate houses are very much appreciated and recognised for leaving aside their greed and contributing for society and nature. A smile in a neglected person can bring tons of satisfaction to the people those who become means to it.