THE PROS AND CONS OF CORPORATE SOCIAL RESPONSIBILITY
THE CASE OF INDIA
Farwa Sial, India 27 July 2011
The Indian business economy is in the process of consolidating its post-liberalisation corporate governance model. The emphasis is on improving its social responsibility towards the community and wider classes of stakeholders. Although Indian businesses have implemented policies of Corporate Social Responsibility (CSR) for some time, they have tended to be founded on charitable and ad-hoc bases as opposed to the fully incorporated business model. Companies like Tata have been investing in corporate philanthropy since 1945 without any government pressure; two-thirds of all the profits made by Tata Group companies fund two charitable trusts. Pundits would argue that a positive relationship exists between investment in CSR activities and increased firm performance. Indeed these experts have argue that listed Indian companies tend to have a higher aggregate of CSR than unlisted companies, which is perhaps at least partially indicative of their better performance. The World Entrepreneur Society (WES) takes a look at CSR in India, questioning whether this is viable mechanism to improve the broader Indian society?
A DROP IN THE OCEAN
Recently the Indian Ministry of Corporate Affairs made it mandatory for companies to disclose their CSR spending to their shareholders. This is an amendment of the Indian Companies Bill 2009, which required companies to earmark 2% of average profits after tax for CSR activities. In effect this suggests that Indian companies will spend Rs 8,700 crore ($2 billion) on CSR activities every financial year. In a country where 90% of the employment sector is in the informal economy, this is a drop in the ocean, however this is an important mechanism to direct investment towards economic and social infrastructure. Many Indian firms are already investing in community education, health, employment, skill development and rural development activities. The government-owned Coal India Ltd (CIL) for example, has announced its plans to establish four medical colleges and an engineering college in the mining areas of its subsidiary companies. Similarly Tata Steel has partnered with the Government of Jharkhand and ISKCON Food Relief Foundation to fund a Mid-Day Meal Scheme for underprivileged children in the schools of East Singhbhum and Saraikela-Kharsawa districts of Jharkhand.
GOVERNMENT SHIFTING RESPONSIBILITY
Investment in CSR provides companies with solid marketing opportunities in terms of market positioning, product positioning and differentiation as well as customer and stakeholder engagement. In India corporations can thus enhance their public image by investing in development related projects initiated by non-governmental actors. A rising number of such non-governmental organisations are redefining social entrepreneurship by investing in social venture funds and community based social programs. NGOs are not new to India with social entrepreneurship an increasingly popular business model but the mandatory 2% spending on CSR strengthens the bond between these organisations and corporations, as they interface in the context of various development projects. Businesses are thus afforded a win-win opportunity through CSR; however critics suggest that this is simply another step in the ongoing delegation of social policy from the State to the private sector. By reducing social protection reforms to the domain of social philanthropy and business-led CSR, the State effectively extricates itself from accountability to the public, the taxpayer and other stakeholders.
THE RELATIONSHIP BETWEEN THE STATE AND THE PRIVATE SECTOR
Sharon Weir the founder of 4TH Wheel- a social enterprise which focuses on research, advocacy and provides CSR solutions for businesses in India thinks differently. According to Weir ‘The private sector cannot engage in social responsibility without help from the State. Globalisation and economic liberalisation have been at play in India since the 1990s however the business sector has not adapted any uniform policy to address the social needs of the society until now. The fading State is as bad for business as it is for people. CSR simply forces corporations to work with the State.’ The 4TH Wheel is currently conducting a research study on the relationship between the private sector and the State in social service provision in the rural areas of Gujarat. The study is analysing the impact of economic liberalisation in the region. The case studies include Mithapur (Tata Chemicals) and Ambuja Cement. Some of their clientele and projects include Gujarat Chamber of Commerce & Industry GCCI, Self Employed Women’s Association (SEWA) Kids Foundation of India, PVR Cinemas and Solid Waste Management (SWM) project in Ahmedabad.
WOMEN AND MINORITIES
CSR is a valuable business tool, which can influence government policy making. Examples of the possibilities CSR affords can be found in issues such as the gender divide in the Indian workforce. The Centre for Social Research’s recent study; Women Managers in India, highlights the gender disparity between male and female managers in the Indian corporate sector. As a class of stakeholders, female workers are generally paid less than their male counterparts in many companies and opportunities for career development are reserved for men. They also suffer discrimination in the absence of adequate maternity laws. Active CSR business initiatives could be a far more effective means to bridge this gender gap than previous legislative attempts, which have tended to be less implementable with a tick-boxing approach. Similarly CSR business models can adapt towards employment policies to allow equal representation for minorities. An interesting case is the internationalization of the advocacy for the Dalit community. The term Dalit includes both scheduled castes and the scheduled tribes. The scheduled castes are parties considered at the bottom of the caste system while the scheduled tribes are those communities who have remained on the fringes of the caste society. The Bhopal conference held in 2002 lobbied for allocating a minimum quota for the Dalit community in the private sector. Targeted CSR initiatives, particularly where the private sector is increasingly redefining class relations would be by far the most effective means to implement changes in the dynamic of capitalist relations in a society like India so as to benefit stakeholder classes such as Dalits.
THE ‘GREEN’ RESPONSIBILITY
India is a signatory to the Clean Development Mechanism (CDM) which is the United Nations agreement for developing countries to stabilize greenhouse gas emissions. Internalised CSR models can enable companies to effectively and flexibly follow specific environment related policies, as opposed to top-heavy regulatory mechanisms. Such models would also be more conducive to Indian participation in international emissions trading initiatives. Tax breaks for companies that regulate CO2 emissions and reduce toxic wastes by the government can act as incentives for adopting environment friendly CSR policies.
THE FIX ALL STRATEGY
CSR provides for good public relations and engagement and lays the bedrock for good governance by reaching out to a wider range of stakeholders and ultimately spreading the benefits of positive transactional spill overs and corporate wealth creation. CSR also has corporates directly dealing with their negative externalities, in a more engaged and flexible fashion with more utilisation of the specific company’s expertise as opposed to cumbersome post-hoc centralised government controls. While liberalisation has in recent years changed India the crucial question is whether Corporate Social Responsibility is the fix all strategy which aims to revolutionise the industrial and corporate face of India as well as radically transform Indian society in terms of inclusion and wealth distribution? Have your say…..