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The CSR imperative

Companies Bill, 2011

The Companies Bill that has been passed by the lok sabha on December 18, 2012

has introduced certain new features, new concepts.

Inclusive growth has remained at the heart of governments economic policies and

it has undertaken substantial initiatives to ensure dignity for common people.

Government has proposed to ensure industries efforts in Corporate Social

Responsibility (CSR). The Companies Bill, 2011 Under Sec 135 requires companies

with Net worth of Rs. 500 crore.

Turnover of Rs. 1,000 crore or more to set up a Corporate Social Responsibility

Committee of the Board of Directors. This Committee is to devise a CSR policy to

engage in social development areas as laid out in the Scheduled VII of the Bill.

Such Companies are required to spend every year at least two percent of the

average net profits made during the three immediately preceding financial years.

Monitoring and providing information on the CSR activities is part of the Bill. In

case the company is unable to spend the requisite amount, it would have to

mention the reasons in its annual report.

Schedule VII covers a variety of activities relating to poverty eradication,

education and skill development, gender empowerment, health, and

environmental sustainability, among others. It has also included contribution to

Prime Ministers Relief funds and other funds as also social business projects in

the ambit of CSR. The Bill has been passed by the Lok Sabha.

Conscious of the responsibility to society, Indian business has been at the

forefront of social development activities, and did not favor mandatory spending

on CSR, stressing that corporate should be allowed to align themselves to the

requirement over time.

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When the Bill is passed, India will be the first country to include provisions on CSR

in its Company Law. The apprehension is that the provision should not be

counterproductive, leading to expenditure by companies just to fulfill legal

requirements, rather than devising strategies with maximal societal impact. As

companies are at different levels of maturity, a flexible CSR policy would work

better than mandated spending.

Moreover, we would have wished for greater clarity on eligible CSR activities,

reporting, and monitoring, unspent funds pertaining to a particular year, overseas

CSR activities, and treatment of CSR by trust and societies set up by the

companies. The lack of information in these matters would create much

confusion till sorted out.

With the Companies Bill set to become law, companies would need to evolve

specific CSR policies and work with NGOs and civil society in translating them into

action. A concern arises regarding the capacity of civil society organizations to

handle the large expenditures involved. Only a handful of NGOs are of sufficient

scale and experience to deal with corporate requirements, while often smaller

organizations suffer from a credibility gap. Similarly, while many corporate engage

in social responsibility work, they would have to add more focus and commitment

for which they may not have necessary expertise.

The partnership of Corporate and NGOs has to be developed with care in order to

derive the best outcomes for society. With civil society organizations looking for

more professionalism in their approach and corporate seeking strategic

deployment of resources, mutual synergies are high.