Keith Davis proposed in 1960 that social responsibility refers to business decisions and activities that are at least partly motivated by factors other than the firm’s direct economic or technical interests. In recent times, the term “corporate social performance” (CSP) has emerged as a broad and global concept that encompasses corporate social responsibility, responsiveness, and the full range of companies’ socially beneficial activities. The terms “society and enterprise,” “social problem management,” and “corporate accountability” are just a few that characterize the phenomenon of CSR in society.
Business is often seen as the problem-creating entity. This is why we see overreliance on NGOs and the government. Michael E. Porter suggests the idea of Shared Value which is a Social Issue with a business model. He suggests organizations tap into their resource pool and their organizational capacity to create shared value. This idea of creating shared value is gaining traction after celebrating years of fast economic growth measured through calculating the GDP which has conveniently ignored the negative externalities associated with it.
The Structural Adjustment Program of 1992 expedited the economic growth in India. Businesses created wealth in terms of GDP but this wealth came with negative externality. These negative externalities were deforestation for fuel, industrial construction; the internal displacement of communities for mining, damn construction, industrial development; exploitation of non-renewable resources; pollution through industries; harmful waste production; rising inequality; conflicts in the community due to limited resources, etc. In 2015, eighteen village councils blamed Coca-Cola’s groundwater exploitative strategies for “water-scarcity” in their villages. This put the need of the company in direct competition with the groundwater needs of the local community. The acknowledgement of these externalities is the first step to setting the business responsible. We need to find solutions to social challenges but the first and often forgotten step is ‘finding’ and ‘defining’ the social problem.
It took the state two decades to acknowledge the problems associated with mindless industrial growth. In 2013, India became the first country in the world to have introduced Corporate Social Responsibility as a legislative imperative for Indian businesses. “All companies with a net worth of Rs 500 crore or more, a turnover of Rs 1,000 crore or more, or net profit of five crores or more, are required to spend two percent of their average profits of the previous three years on CSR activities every year.”
One needs to define all the nuances of existing situations and desired situations to create an impact. Assessment of community needs and problems are important to make CSR projects effective and impactful. It is often found that CSR projects in India are not assessed in terms of community needs. A problem should be identified and defined from a multidimensional perspective. The key to a successful CSR project is community engagement at all levels of – defining the problem; finding the solution; implementing the project; monitoring and evaluating the project.
A CSR project is often not grounded in a set of principles defining responsible business. It is performed to improve the brand image of the corporation. Many companies treat CSR as a way of offsetting any socially irresponsible practices conducted by them.
CSR Amendment Rules 2021: A step towards responsible business
- Financial Resource problem addressed: Typically the issues faced by the project are adequate human and financial resources. According to the new rules, companies may set off CSR expenditure above the required 2% in any fiscal year against required expenditure for up to three fiscal years under the new CSR regulations. As a result, the government has allowed businesses that have incurred excessive CSR spending in the past to deduct it from future CSR spending requirements. This will allow the projects which lacked resources on the part of the company to holistically address the community problems with solutions that address real problems.
- Private trust trivia addressed: Companies cannot authorize a Section 8 corporation or a registered public charitable trust to conduct CSR projects on their behalf under the new amendment: The amendment would affect several big Indian corporations’ CSR programs, which are run through private trusts. Unlike other types of spending, CSR spending does not need to be vetted by statutory auditors. Furthermore, the financials of charitable trusts are not subject to much statutory scrutiny. Because of such a confluence of factors, the CSR standards were ripe for misuse. There were reports of certain companies using it for money laundering. It would mean that such private trusts would have to either register as public trusts or stop acting as CSR corporations.
- Regulation of CSR implementing agencies: Any company with a CSR obligation of Rs 10 crore or more for the previous three financial years must hire an independent agency to conduct an impact assessment of their overall project with outlays of Rs. one crore or more, according to the amended rules. Companies will be able to deduct 5% of their annual CSR spending, up to Rs 50 lakh, for impact assessments. Such CSR implementing agencies are required to be registered with the Government by April 1st, 2021.
- Business Responsibility other than mandated CSR projects: Conventional Business thinking has always seen resources to be a zero-sum game against the community. This is the reason for the Managerial Sciences to have concentrated almost exclusively on solving short-run profit maximization problems. This profit comes at the cost of cheap labour, pathetic working conditions, unsafe and unhygienic workplaces. Over the years the research has proved the positive impact of investing in the employee and his needs on the long profit of the company. For sustainable business practices, a company should abide by labour standards. 90% of the Indian workforce works in the informal sector, hence their employers do not come under the umbrella of labour law regulation. Contractualization of jobs, gig economy has palpable impacts on the labour force which needs to be addressed. Realizing the human dimension of labour is the first step towards responsible business. Business is always seen as community responsibility as a part of a problem. This is the reason why the Indian government in the name of ease of business is ready to do away with requisite steps which were earlier installed in the favour of society. For example, the new Environmental Impact Assessment Rules shrink its scope. A new category of projects involving “strategic considerations” are excluded from EIA. The reporting time has been reduced to 6 months from one year. Avoidance of the “Precautionary principle” in the form of EIA is a dent in business responsibility.
The responsible business also delves deeper into the idea of ethical business practices. Society ultimately pays the price of unethical business practices. Monopolistic businesses, oligarchies that prosper with the help of crony capitalism need immediate attention before it is too late. Monopolies reduce the opportunity to innovate as new players find it difficult to challenge the behemoth corporations. Consumers ultimately pay the price of lack of competition.
Responsible business practices are deeply rooted in the Gandhian Trusteeship model of business. Conceived in the pre-independence era, Gandhiji considered the corporate leaders to be trustees of wealth and be ready to part their wealth to help the less fortunate people. His socio-economic philosophy can be summed as “I must know that all that wealth does not belong to me; what belongs to me is the right to an honourable livelihood by millions of others. The rest of my wealth belongs to the community and must be used for the welfare of the community.” JRD Tata, founder of Tata Group is a quintessential example of a follower of the idea of the trusteeship model. The Group is dedicated to solving India’s most urgent social needs. 66% of Tata Sons’ equity is held by the Tata Trusts and dividends flow directly to support the philanthropic work of the Trusts. This is beyond the 2% of mandated CSR expenditure that the law mandates.
A responsible business can be equated with sustainable business. It is time we move from shareholder capitalism to stakeholder capitalism and recognize our responsibility towards the community. A responsible business is key in achieving the UN SDGs by 2030.
Read more: The Bumpy Road to Grassroots Democracy
The views expressed in this article are the author's own.