Raghunathan puts forward the counter argument, but does not quite take a call on whether it should be mandatory or not.
If the reader wants to know everything about corporate social responsibility, Doing Good is the book to peruse. The author, Meena Raghunathan, who also manages the CSR activity of GMR Group, provides a rather comprehensive account of the evolution of the concept as well as the progress made by India in this respect. The author has been a CSR practitioner for 15 years, having been involved with CSR operations in India both before and after the Act that makes it mandatory for corporates to deploy funds for this purpose; and also has a boardroom perspective on it.
As the phrase suggests, CSR is all about companies giving back to society and hence is laudable. There are, however, some caveats here. There have been companies that have been indulging in philanthropy even before this concept of giving was made mandatory. Today when we talk of CSR, it is more of a mandate from the top (Section 135 of Companies Act 2013) that all companies which meet a criteria that has been specified in terms of profit have to devote 2% of the net profit for certain purposes which come under CSR. Therefore, from being something which came from within, it is more of a mandatory compliance.
The author points out that once such an action is made mandatory, companies end up looking to comply with the order and would not really like to get involved with the quality of this spending. Now here it can be counter argued that companies are out to make money for their shareholders and hence would not really like to spend time on CSR activity. It is the job of the government to undertake these activities. Raghunathan puts forward the counter argument, but does not quite take a call on whether it should be mandatory or not.
In fact, she highlights the fact that economist Milton Friedman had argued that the job of companies is to make money and not take on ventures that the government should be involved with. Likewise, everywhere there is the argument on privatisation that is based on the premise that the government should be out of the business of production as it is not good in doing so and should concentrate on social welfare. This is where the problem really is.
Now the author talks on how companies only pay formal obeisance to this requirement and end up putting the money in certain activities such as education, which appears to be the favourite. She mentions that 35% of the amount goes here, followed by health, sanitation and drinking water. This becomes a low hanging fruit for the companies. Or else they are channelled through certain NGOs or government funds (Swach Bharat or PM CARES) which qualify for the same. It can be argued that companies cannot be blamed for such an attitude because there is a strong support for the view that they would ideally not mind paying an additional tax of 2% instead of deploying their human resources for ensuring that there is compliance. In fact, now regulation has become tighter with board-level committees also having to be set up to oversee such activity. This imposes an additional cost for companies, which at times adds significantly to the 2% that is being spent.
Such an issue will be hard to resolve easily. Interestingly, Kiran Karnik, in the foreword, would like such funds go through private NGOs so that there is more flexibility in terms of deployment of these resources. Interestingly, he points out that when public sector enterprises have to spend money on CSR, it is through a tendering process where the NGOs are at a disadvantage as they do not know how to handle such issues and have to outsource the same to a third party.
The author, however, raises some pertinent questions which will lead to debate. Is CSR about doing good or being good? Is it about how profits are made, or how they are spent? This is really the larger issue which companies have to address. At what stage does a company work for the stakeholders rather than only the shareholders? This is pertinent because often the economic activity, which is say construction or mining or petrochemicals, causes harm to society. Companies may spend less on lowering polluting processes and prefer to make profits of which 2% is spent on doing good. Is this acceptable? Clearly there are no clear answers here.
CSR does not really have a clear conceptual and operational definition which is universally acceptable. In fact, today, the focus is on ESG which becomes even more complex. Too many such pressures lead to the concept of greenwashing where companies are more in a race to comply with everything and in the process the spirit is lost. In fact, it is also alleged that by allowing companies to choose their routes to CSR spending in some countries they effectively get policy making powers.
The author also appeals to corporates to pursue this goal in the right spirit. Being a good company would add value in future. This would be in terms of reputation, employee connect and even finance as the day is not far off when lending can get linked to the work done on the ESG front.
The book also is a guide for NGOs which are seeking such contracts as it gives a step-by-step account of how they should approach companies. At the same time she provides a template to companies as to how they should address the issue of carrying out the task of meeting the regulatory requirement in the right spirit and have the right people to monitor the same. She believes that the impact is more important than the action. The detailing of processes from all sides is quite comprehensive and would add value for all stakeholders in the business of CSR.
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