Academic Associates– IIM Ahmedabad

KALPESHKUMAR GUPTARACHNA ARORA

CORPORATE SOCIAL RESPONSIBILITY IN CENTRAL PUBLIC SECTOR ENTERPRISES OF INDIAICGS 2014_170

INTERNATIONAL CONFERENCE ON COPORATE GOVERNANCEMARCH 14-15, 2014

Central

Outline of the presentation :-

1. Introduction2.Objectives of the study3.Research Methodology4.Findings5.Managerial Implications6.Research limitation7.Scope of future study8.Q & A

Introduction

• CSR is concerned with treating the internal and external stakeholders of the firm ethically or in a socially responsible manner and the wider aim of corporate social responsibility is to create higher and higher standards of living, while preserving the profitability of the corporation, for its stakeholders (Hopkins 2003).

• Stakeholders include employees, investors, shareholders, customers, business partners, clients, civil society groups, Government and non-government organisations, local communities, environment and society at large.

Objectives of the study

Objectives of Study :-

To study the existing Corporate Social Responsibility practices in Public Sector Enterprises of India.

Research Methodology

Type of paper :-

Descriptive Paper

Companies chosen for study :-

Maharatna Companies

1. Bharat Heavy Electricals Limited 2. Oil & Natural Gas Commission 3. Steel Authority of India Ltd. 4. National Thermal Power Corporation

Navratna Companies

1. Oil India Ltd. 2. Rashtriya Ispat Nigam Limited 3. Power Grid Corporation of India

Maharatna

- Three years with an annual net profit of over Rs. 5000 crore- Average annual Net worth of Rs. 15,000 crore for 3 yearsNavratna

A score of 60 (out of 100), based on six parameters which include net profit, net worth, total manpower cost, total cost of production, cost of services, PBDIT (Profit Before Depreciation, Interest and Taxes), capital employed, etc.A company must first be a Miniratna and have 4 independent directors on its board before it can be made a Navratna.

Miniratna Category-I

Have made profits continuously for the last three years or earned a net profit of Rs. 30 crore or more in one of the three years. 

Miniratna Category-II

Have made profits for the last three years continuously and should have a positive net worth.

ResearchFindings

CSR in Public Sectors EnterprisesCPSEs are governed by guidelines issued by Department of Public Enterprise.

New Guidelines on CSR and Sustainability for CPSEs came into effect on April 1, 2013.

According to the new guidelines, a company is now expected to disclose even its most routine business activities and operations, and CPSEs are asked to formulate their policies with a balanced emphasis on all aspects of CSR and sustainability – both internally and externally.

While the earlier guidelines focused mainly on CSR activities for external stakeholders, the revised guidelines take internal stakeholders, particularly employees, into account in a much more serious way. To fortify and sustain this trend, sustainability reporting has been made mandatory for all public sector enterprises in India.

Driven by DPE Guidelines issued on 9-4-2010

Section 135 of Companies Act 2013 The new legislation requires certain class of companies to spend at least 2% of their three-year average annual net profit towards CSR activities.

Source : - Krishnakant & M, Saraswathy (2013)

CSR

• Listed companies would be liable to spend Rs 8,100 crore in all on corporate social responsibility (CSR) for 2012-13, with the new Companies Act making it mandatory for them to earmark two per cent of their net profit (the average of the past three years) on such activities.

• For FY14, the first full year of the law’s implementation, the spend could go up to nearly Rs 8,700 crore, given that India Inc’s profitability has grown at a compounded 7.5 per cent annually in the past three years.

• With the implementation of this law, Oil and Natural Gas Corporation will be India’s biggest spender on CSR, contributing nearly Rs 500 crore, based on the past three years’ numbers. It will be followed by energy and petrochem giant Reliance Industries, which will have to fund CSR projects worth Rs 400 crore to meet the guidelines.

CSR

• There are various parameters to assess the performance of CPSEs in terms of corporate governance. The government evaluates their performance on a scale of 1 to 100. Higher score translates into better compliance with corporate governance. If any CPSE fails to submit the self-evaluation or compliance report by the cut-off date, it is graded and considered as equivalent to ‘Poor’. During FY12, out of the total 248 CPSEs, 78 CPSEs (31.5%) received ‘Excellent’ score compared with 61 CPSEs in FY11, as they complied well with the corporate governance guidelines.

CSR IN MAHARATNA & NAVRATNA COMPANIES

CSR in Maharatna & Navratna Companies

• Adoption of Villages• Free Medical Camps 7 health care• Construction of Roads• School for the underprivileged& Handicapped Children• Ban on child Labor• Diaster aid• Employment generation• Pollution Checking Camps• Irrigation using treated Sewage• Plantation of trees• Conservation of Natural Resources• Entrepreneurship schemes• Women’s empowerment,Girl Child Development• Sponsership of Seminars,Conference,Workshops

CSR in Maharatna & Navratna Companies

• Promoting Sports• Providing drinking water access• Women Literacy Programmes• Assistance in Mid day meal Programme,etc

Awards• PSE Excellence Award in 2013-won by SAIL• Golden Peacock Award in 2013 –won by ONGC• Golden Peacock Award in 2012 –won by NTPC• Golden Peacock Award in 2010 –won by BHEL• Greentech CSR Award 2012-won by NTPC• Greentech CSR Award 2011-won by PGCI

• PSUs are facing numerous challenges and limitations while implementing CSR programs. They largely relate to the organizational level issues such as absence of a dedicated CSR team, active involvement of key stakeholders, budgetary issues and identifying apt CSR projects and their beneficiaries. Survey findings revealed that identifying appropriate CSR projects as the top-most challenge of the PSUs.

• Around 28% of the companies surveyed, feel that identifying appropriate social projects and their beneficiaries is their biggest concern. This was followed by lack of active involvement of all stakeholders and beneficiaries as the other major challenge. Data has already shown that Maharatna and Navratna public sector undertakings (PSUs) have not been able to fully spend their CSR budget.

• Data released by the ministry of Heavy Industries & Public Enterprises show that the 5 Maharatnas - ONGC, Coal India, IOC, NTPC and SAIL - managed to spend just 49% of the combined budget for three years beginning 2009-10. The spending budget for most PSUs is updated till end September 2011. The combined spending of the Navratnas was higher at 65%. But at least five of these 21 PSUs managed to spend less than 25% of the CSR budget of the three years.

• Coal India spent only 27% of the budget, according to information released. National Aluminum Ltd (NALCo) was the only one that managed to fully spend its Rs 31.55 crore budget. ONGC spent 49% of the budget in the three years. Whereas Coal India, its performance in the third year was disappointing. It spent only 6% of the budget till September 2011. Indian Oil Corporation spent 85% of the Rs 264.4 crore it set aside and SAIL 72% of the Rs 179.68 crore. (Tina Edwin, 2012)

Concluding Remarks

• PSUs are not taking much CSR initiatives as they don’t see any support from the governments. Some kind of financial incentives should be given to PSUs so that they can feel motivated and undertake more and more CSR activities. Around 60% of the surveyed PSUs feel some kind of recognition such as receiving an award would push the level of their CSR activities. Further, about 19% of the surveyed PSUs feel CSR expenditure should be liable for a tax deduction, which would act as a major incentive for carrying out CSR projects.

Managerial Implications

Present research paper will help corporate to make a comprehensive business strategy considering important aspects of Corporate Social Responsibility.

Earlier CSR was voluntary act but now it’s an obligation for them. For sound Corporate Governance, CSR has become salient part of it.

Government can make some robust policies as taken in other countries. In nutshell we can say that we need collective efforts for fulfilling obligation of CSR.

Companies will have to constitute a CSR committee of the board of directors, consisting of three or more, of which at least one director shall be independent.

Limitation of Research paper

Study is based on secondary data available from various sources.

Scope of Future Research

New Companies Act, 2013 mandated CSR as an obligation under Section 135 now.

One can study the CSR in India before this new law and after its implementation and how it will affect the companies which are already involved in CSR activity and on those companies which are doing nothing about CSR or doing at minimal level? These thoughts can be served as the basis for future research on the related topics.

References :-

References [1] Anupam, Sharma & Ravi, Kiran, (2012), “Corporate Social Responsibility Initiative of Major Companies of India with Focus of Health, Education and Environment” African Journal of Basic & Applied Sciences, 4(3): 95-105. [2] Bharat Heavy Electricals Ltd. retrieved from http://www.bhel.com/healthsafety/global_compact.php on February 5, 2014 [3] Bharat Heavy Electricals Ltd. retrieved from http://www.bhel.com/images/pdf/BHEL%20Annual%20Report%202010-11.pdf accessed of February 14, 2014. [4] Carroll, A. (1999). “Corporate social responsibility: Evolution of a Definitional Construct” Business & Society, 38(3), 268 [5] Department of Public Enterprises, Govt. of India, MOU Division http://www.dpemou.nic.in/MOUFiles/Revised_CSR_Guidelines.pdf [6] Friedman, M. (1970). Money and income: Comment on Tobin, Quarterly Journal of Economics, 84, 318–327. [7] Gregory, Alan & Whittaker, Julie (2013), Exploring the Valuation of Corporate Social Responsibility - A Comparison of Research Methods, Journal of Business Ethics, 116:1–20.  [8] Hopkins, M (2003), “The Planetary Bargain: Corporate social responsibility comes of age”, London: Macmillan press.  

References :-

References  [9] Krishnakant & M, Saraswathy (2013), “Listed Companies liable to put aside Rs. 8100 Cr in FY 1for CSR”, Business Standard, October 7, 2013 retrieved from http://www.business-standard.com/article/companies/listed-indian-firms-to-spend- rs-8-100-cr-on-csr-in-fy13-113100600288_1.html on January 20, 2014. [10] List of Maharatna , Navratna & Miniratna CPSEs, Department of Public Enterprises, Ministry of Heavy Industries & Public Enterprises, December, 2013 retrieved from http://dpe.nic.in/publications/list_of_maharatna_navratna-and_miniratna on February 1, 2014 [11] Ministry of Steel, Govt. of India retrieved from http://steel.gov.in accessed on Feb5, 2014 [12] NTPC Ltd. retrieved fromhttp://www.ntpc.co.in/index.php?option=com_content&view=article&id=38&Itemid=89&lang=en on Febuary12.2014.

[13] NTPC Ltd. retrieved from http://www.ntpc.co.in/index.php?option=com_content&view=article&id=83&Itemid=186&lang=en on February 12, 2014

[14] OECD Principles of Corporate Governance (2004) retrieved from http://www.oecd.org/corporate/ca/corporategovernanceprinciples/31557724.pdf, accessed on January 10, 2014 [15] ONGC Ltd. retrieved from http://www.ongcindia.com/wps/wcm/connect/ongcindia/home/achievement_awards/1-golden-peacock-award accessed on Feb5, 2014.

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[16] Oil India Ltd. retrieved from http://www.oil-india.com/CSR.aspx on February 12, 2014. [17] Oil India to enter dairy sector; inks pact with IRMA for study (2013) retrieved from http://articles.economictimes.indiatimes.com/2013-12-29/news/45674888_1_milk- production-dairy-sector-oil-chairman on February 12, 2014. [18] Philanthropy has to be spontaneous, can’t be forced : Azim Premji, Press Trust of India, September 26, 2013 retrieved on http://profit.ndtv.com/news/corporates/article-philanthropy- has-to-be-spontaneous-cant-be-forced-azim-premji-327730 on February 12, 2014 [19] Panel for action against Coal India officials for CSR funds, Press Trust of India, December 25, 2013 retrieved on http://profit.ndtv.com/news/corporates/article- panel-for-action-against-coal-india-officials-for-csr-funds-375829 on February 12, 2014 [20] Power Grid Corporation of India Limited retrieved from http://www.powergridindia.com/_layouts/PowerGrid/User/ContentPage.aspx?PId=177&LangID=English on February 12, 2014. [21] Power Grid Corporation of India Limited retrieved from http://www.powergridindia.com/_layouts/PowerGrid/User/ContentPage.aspx?PId=175&LangID=English on February 12, 2014 [22] Responsible Business Perspective: A PSU Perspective (2013), Dun & Bradstreet Information Services India Pvt. Ltd retrieved from https://www.dnb.co.in/TopPSU2013/PSUPerspective.asp on February 16, 2014  

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 [23] Rashtriya Ispat Nigam Limited, Visakhapatnam Steel Plant retrieved from https://www.vizagsteel.com/csr/about.pdf on February 12, 2014. [24] Steel Authority of India Limited, retrieved from http://www.sail.co.in/sail-press- release/sail-wins-pse-excellence-award-2013-csr-sustainability accessed on February 14, 2014 [25] Saltaji, Issam, M (2013), “Corporate governance relation with Corporate sustainability” Internal Auditing & Risk Management, Anul. viii, Nr.2(30), June 2013. [26] Tina Edwin (2012), “PSUs Maharatna and Navratna' CSR budgets not fully spent”, Tina Edwin, Economic Times, May 23, 2012 retrieved from http://articles.economictimes.indiatimes.com/2012-05-23/news/31826446_1_csr- activities-spending-budget-crore-budget on February 12, 2014 [27] Unites Nations Industrial Development Organization retrieved from link retrieved from http://www.unido.org/en/what-we-do/trade/csr/what-is-csr.html on January 19, 2014.        

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Kalpeshkumar GuptaRachna Arora

(c) K L Gupta