[Economy] Corporate Social Responsibility (CSR): Meaning, provision in Companies Bill 2012

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  1. What is Corporate Social Responsibility?
  2. Examples of CSR?
  3. Why CSR?
  4. Methods of CSR?
  5. Companies Bill 2012
  6. Who is covered?
  7. Provision?
  8. Punishment?
  9. CSR: Pro-Arguments
  10. CSR: Anti-Arguments

What is Corporate Social Responsibility?

  • Corporate social responsibility.
  • Activities done by a company to give social-economic-environmental benefits to the society.

Examples of CSR?

  1. IndianOil gives special allotment of petrol/diesel station dealerships and LPG distributorships to beneficiaries from among SC/ST/PH/Ex-servicemen, war widows, etc.
  2. Installation of hand pumps/bore well/tube wells/submersible pumps
  3. Rainwater harvesting projects,
  4. Aquaguard water purifiers/water coolers to schools/community center etc.
  5. Organising Medical/Health Camps on Family Planning,
  6. Immunization, AIDS awareness

Big companies like Tata, Wipro, Birla, Essar have done many such projects.

Why CSR?

  • The term “Corporate social responsibility” was coined in late 50s, but it remained just an academic concept for many years.
  • The issue was raised in Rio Earth Summit (1992). But MNC-giants were non-committal and lobbied heavily against such moves. (recall  how American corporate giants did not allow UN to get control over DNS registry in the recent WCIT Dubai conference. Click me)
  • In the 90s, big NGOs such as Greenpeace started exposing the environmental and human rights abuse done by American oil and mining companies abroad. (particularly Shale company in Africa.)
  • This led to huge negative publicity for those companies particularly among the consumers in first world.
  • Hence the MNC giants started taking up CSR initiatives in third world (Asia, Africa) as a PR-image improvement exercise.

Apart from that, CSR is done for

  1. Pure philanthropic reasons.
  2. Earning Good will among customers and local community members.
  3. Long term interest: e.g. a company spends money in child-education of XYZ, in long term those kids grow up= can provide skilled labour, or atleast earn more money than their parents= more purchasing powers =good for all companies.
  4. Getting tax-benefits from Government.

Methods of CSR?

Via Charity Company will just donate money to Red Cross, UNICEF etc.
Via Contract Company will hire an NGO/another special agency to carry out a project and pay them money.
By itself Company will create separate Administrative machinary and staff of its own, to do the social welfare work. (E.g.in big companies like Microsoft, IBM, Dabur etc.)

Companies Bill 2012

It’ll replace the Companies Act 1956

Lok Sabha Passed it in Winter session (Dec 12)
Rajya Sabha Likely to pass it during Budget Session (Feb 13)
  • Companies bill is likely to come in effect from April 1, 2013.
  • This Companies bill contains provisions regarding CSR.

Who is covered?

  1. Companies that have a turnover of over Rs 1,000 crore
  2. or have a net worth of Rs 500 crore
  3. or that have recorded a net profit of Rs 5 crore

Provision?

^These companies are expected to spend 2 per cent of their profit in preceding three financial years towards CSR.

Punishment?

The bill says, they’re “expected” to…meaning it is not compulsory to spend money. BUT, the same bill provides that

  1. Board of directors will be responsible for seeing that company spends money for CSR.
  2. It is compulsory to send report on the CSR-spending to the Corporate Affairs Minister.
  3. If company is not spending money for CSR, it’ll have to explain why they are not doing so.
  4. Companies that do not report will face a penalty ranging from Rs 50,000 to Rs 25 lakh or even imprisonment of up to three years
  • In Budget 2013, Chindu is likely to allow some tax-deduction /benefits to companies who spend money for CSR, thus making it attractive for the companies to spend money for CSR.
  • An estimated 2,500 companies fall into this “mandatory” CSR-reporting category.
  • CSR activities in the first year would be between Rs 9,000 crore and Rs 10,000 crore spent in social welfare. This could significantly benefit the society at large.

CSR: Pro-Arguments

  1. Big Companies in India are already making a killing, particularly in mining, real-estate and IT sector, so spending a few crores on CSR shouldn’t be an issue. Besides, Corporate Social Responsibility spending has been kept very low: only 2%.
  2. Government could increase the tax-rates to collect additional 2% and then spend the money on its own for various social welfare schemes. But instead Government has given flexibility to the companies to do take up projects on their own= there would be corruption and leakages. So, If the companies themselves spend the money on CSR, more likely to show some result.
  3. Media is unnecessarily creating panic- CSR “spending” is not compulsory, CSR-“reporting” is compulsory.
  4. This provision will lead to about 30% increase in CSR-linked jobs. (those special project officers, MSW degree etc). For example, Dabur is reviewing its existing CSR programmes in the wake of the latest developments. It will hire more professionals if it feels the need to extend the existing CSR-programmes.

CSR: Anti-Arguments

  • Companies already paying so much in taxes + global economic crisis= decline in profit.
  • It is the job of Government to do all the social welfare stuff. Companies are only responsible to their shareholders and not to society as a whole.
  • If company has to spend 2% of profit in CSR= means less profit will be shared among the shareholders.
  • Might lead to ‘creative accounting’ (only showing work on paper) or doing work that actually benefits the company rather than society. Corporate Affairs ministry doesn’t have the manpower to manually inspect the CSR-projects done. Thus making the whole exercise useless to society.
  • NGOs often feed journalists stories of supposed corporate malpracticies, tribal exploitation etc, which the reporters are happy to print without much background check.
  • Hence companies just throw off donation money to such NGOs in the name of CSR and to media houses in the name of “advertizemenst”, just to keep them both in “good humor”. So in many cases, CSR is done because of yellow-journalism and “yellow-NGOism.” Thus, CSR doesn’t cleanse the sins of a company. often it merely allow companies to continue bad behavior in the shadows. (child labour, environmental degradation etc.)

You’re welcome to add your own pro-anti agruments in comments.

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