CSR is more socially relevant when it is driven by altruistic motives rather than being a mandated policy; these have to be inculcated, not legislated
A business that makes nothing but money is a poor business.
—Henry Ford
The recent years have seen a growing realisation in businesses that they should play an active role in changing the world for the better. Hence, a great deal of money has been flowing into the social sector. like individual citizens who have moral and social responsibilities, businesses are being perceived of as corporate citizens who need to commit a part of their time, talent and resources for the welfare of the society as they draw their sustenance from it. This idea has now been corporatised under the appellation, ‘Corporate Social Responsibility’ or better known by its acronym, CSR. It is a business approach that aims at managing a business in a way that it contributes towards sustainable development by delivering social, economic and environmental benefits to all its stakeholders.
We are seeing the emergence of a new crop of mega-donors who are upending long-established norms in the staid world of big philanthropy. Not only are they increasingly willing to take on hot-button social and political issues, they also have a problem-solving and impact-making mindset rather than one focused on publicity.
The World Bank Council for Sustainable Development defines CSR as the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. The core idea of these different definitions of CSR is that companies should conduct their business in a manner that also addresses the broader social environment. As William Clay Ford Jr said, “Creating a strong business and building a better world are not conflicting goals — they are both essential ingredients for long-term success.”
CSR is however not a new concept. Gandhi’s theory of the ‘trusteeship’ is grounded on in the same principles that enshrine the CSR philosophy. The theory of trusteeship combines the benefits of capitalism and communism. Gandhiji used the analogy of a man owning an industry to elaborate this idea. As a trustee, the owner was, first and foremost, expected to:
i) Work just like any other employee.
ii) look upon his employees as members of his family who would be jointly responsible for making management decisions.
iii) To take no more than what he needs for a moderately comfortable life.
iv) Provide healthy working conditions and proper welfare schemes for the workers and their families.
v) Make a moderate profit, a part of which would be devoted to the welfare of the community and the rest to the improvement of the industry.
vi) Regard himself as a trustee of the consumers and ensure not to produce shoddy goods or charge unfair prices. This applied to the employees as well who need to work in an ethical manner
vii) Pass on the industry to his children or whoever he likes only if they agree to run it in the same spirit of the trusteeship.
The doyen of India’s industrialisation, the legendary JRD Tata practiced socially responsible business when the corporate world in India had not even thought of it. He emphasized: “let industry established in the countryside ‘adopt’ the villages in its neighbourhood; let some of the time of its managers, its engineers, doctors and skilled specialists be spared to help and advise the people of the villages and to supervise new developments undertaken by cooperative effort between them and the company.”
India is the first country to mandate a minimum spending on CSR. It has a unique law — the Companies Act, 2013 and the Corporate Social Responsibility (CSR) Rules — which came into effect on April 1, 2014. It is the first country to stipulate that the companies expend their resources on effective CSR programmes. However, there is a crucial difference between the way CSR is implemented in western countries and in India. A generally accepted gold standard for CSR in the western world is that it must be closely integrated with a firm’s business strategy so that the programmes create a shared value for the company’s shareholders. In India, this linkage is explicitly prohibited for CSR; the focus restricted solely on contribution towards societal welfare.
The CSR rules in India specify that expenditures that benefit the company directly or its employees will not qualify for CSR activities. The amount should be deployed directly for larger societal needs. The CSR rules require every company with a net worth of Rs 500 crores, or a turnover or Rs 1,000 crores or a net profit of five crore rupees or more during any financial year to constitute a CSR committee of with the board of directors. This committee will recommend to the board a CSR policy as well as the amount of expenditure to be incurred on CSR activities and monitor the implementation of this policy. The company is required to disclose its CSR policy in its annual report and on the company’s website.
Experience the world over shows that CSR is more socially relevant when it is driven by altruistic motives rather than being a mandated policy commanding philanthropy. It is very difficult to legislate moral obligations. These have to be inculcated, not legislated. laws can set the minimum standards, but they cannot create an impetus or ambience for a philanthropic mindset. This is precisely the reason why we see marked aberrations in the CSR agenda of most corporates. Many businesses harbour a variety of secondary aims and often use CSR for boosting their social profile and business markets. Studies suggest that charity leaders have a geographic bias with corporations funding projects closer to their headquarters. Consequently, more remote regions where development aid is acutely needed are being ignored. Politics can also skew priorities, with companies looking to gain political goodwill funding Government-led projects rather than initiating more socially relevant voluntary initiatives which badly need funding assistance.
CSR has usually been peripheral in most organisations and it is not woven into the texture of business. Even as annual CSR expenditure is on the rise, the impact on the ground remains a matter of debate. Further, it is not always necessarily transparent or mission oriented. It may be for enhancing the brand reputation and even worse, to act as a moral counter balance for brushing off a bad reputation or for camouflaging dark acts.
Moreover, a significant amount of any CSR expenditure comes with strings attached. There are terms that dictate exactly where and how it must be used. While this may beappropriate in some cases, it reflects a serious lack of trust in the non-profit entities and hinders their ability to operate effectively.
When donors insist that their money should go exclusively to the people served, there is not enough money left for the non-profit entities to focus on building their own organisations. They are, therefore, unable to invest in talent, technology, systems, or reporting. Reporting requirements are often an onerous administrative burden for voluntary organisations which have to devote their scarce skills to educated, English-speaking personnel for writing reports for the donors rather than running programmes.
There are so many small organisations in the country that handle all of their international consultancy work in-house. They could easily have given contracts to the swelling band of starry-eyed consultants but they chose not to. Instead they send their own staff, so what the world sees of these organizations is not polished international jet-setters but men of modest backgrounds and basic English language skills, lacking fluency but single-mindedly committed to getting on with the job.
They are happy to work long hours as long as they can find somewhere to cook some food and sleep soundly. Having come up the hard way, they are used to being relocated to different projects in the most inhospitable terrains. These agents are the right conduits for reaching the deep backwaters which desperately need developmental support.
A sincerely and honestly practiced charity always delivers rich dividends in the long run. That is the lesson we learn from both philosophers and business leaders. It is wise to remind ourselves again of the advice of Henry Ford: “A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large.”
(The writer is the author of Village Diary of a Heretic Banker)
