Mandatory CSR with safeguards against misuse by politicians & babus necessary

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By Suresh Kr Pramar

My vote, as those of many who are active CSR Practitioners, is for mandatory Corporate Social Responsibility for companies, private, PSUs and Multi nationals, operating in India. Though many in India Inc. seem opposed to making CSR mandatory there are a growing number of people in the CSR Practitioners fraternity who sincerely believe that mandatory provisions will make CSR more effective and beneficial for the people impacted by industrialization.

We Indians need a push, and the fear of law, to fulfill our obligations. Remember the emergency. Even trains, known for their casual approach to running in time, ran in time. Bureaucrats made sure that they reached office in time and honestly fulfilled their responsibilities. India has been a democracy for the past sixty years and more but we are yet to dump our feudal leanings. We only wake up and move when we are pushed.

Over the past two years much time and energy, and printing ink, has been spent on the debate whether the Responsible Business Guidelines issued by the Ministry of Corporate Affairs should be voluntary or mandatory. The battle lines have been drawn with a large section of business favouring voluntary CSR while an equally sizeable number, including some prominent businessmen, favouring mandatory provisions.

This debated is fueled by the fact that the government is dragging its feet in passing the new Company’s Law Bill, which includes the provisions for CSR. On at least three occasions, in the immediate past, it was announced that the Bill will be passed soon. This has not happened for various reasons. We are now told that the Bill will become an Act in the ongoing session of Parliament, provided the Members of Parliament allow to the House to run its full course.

Over the past two years I have begun to wonder whether mandatory CSR will make the concept more acceptable and beneficial for the people and society. I am still in favour of CSR being made mandatory. I would, however, like additional safe guards to ensure that it does not become an additional avenue for politicians, bureaucrats and their supporters to corner the benefits depriving those for whom it is actually devised.

My concern stems from the fact that over the past years politicians and bureaucrats have been using their power and influence to corner benefits for themselves and their supporters. I could list quite a few instances where these worthies have made good on CSR funds. This is particularly so in the case of Public Sector Units where senior managements are willing to bend over backwards to please their political bosses and senior bureaucrats.

I have been told about a Chairman of one PSU who on entering the room of a Joint Secretary of a Department controlling his PSU noticed that carpet in the room was old and tattered. The Joint Secretary expressed his inability to have it replaced. Chairman had his office buy a carpet to replace the old one at the cost of PSU under his control. The money was credited to the company’s CSR account.

If politician and bureaucrats are allowed a free reign Mandatory CSR would become meaningless. Mandatory CSR will make it easier for politicians and bureaucrats to skim off the cream for their own benefit. Even without CSR becoming mandatory these worthies have been using their power and influence to manipulate CSR funds. Not far behind are CSR Managers, who several CAG Reports have shown, are involved in fraud and are misusing CSR Funds.

There are several instances of politicians grabbing funds meant for CSR. One power utility was sanctioned a sizeable amount of money by the head office to undertake various CSR programmes for the community. A major part of this fund was cornered by a local politician to undertake development activities in his constituency. Even in the case of the remaining funds the politician made sure that his supporters received a bulk of the money for their ‘projects’.

In Raigarh District of Chhattisgarh the Collector had decreed that companies who are not fulfilling their CSR agenda, operating in his area of influence, to deposit the money they have set aside for CSR with his office. The funds are to be used to build infrastructure facilities in the district. He has constituted a CSR monitoring panel which is packed exclusively with officials under his control. Not wanting to take panga with the district authorities companies have followed his directions.

That bureaucrats have been benefiting from PSUs under their control has been well known over the years. Most of these benefits are financed out of the company’s CSR funds. In an article in the Indian Express on September 21, 2009, Amitav Ranjan pointed out “Government officials have been told that they can no longer use Central Public Sector Enterprises (CPSEs) as milch cows for getting expensive mobile phones, chauffeur-driven cars, air conditioners, laptops or paying for their air travel or hotel stay.

A news paper had reported that the Petroleum Ministry was forcing state-run ONGC to provide cars and mobiles, and pay for mobile bills, air fares and hotel stay for department officers. On instructions from the Prime Minister’s Office, the Cabinet Secretary had directed that “ministries/departments which have CPSEs under their control should not permit their officers to use facilities belonging to or at the cost of the CPSEs”. This practice continues even in the face of the PMOs directives.

A CAG Report tabled in Parliament in March 2011 revealed that “Steel Authority of India has spent a good part of money, meant for extending medical facilities to local poor people, for hiring choppers to fly the Minister. According to the CAG Report, during 2006 and 2010, SAIL spent Rs 17.21 crore, cumulatively in all its plants across the country, for organizing medical camps.  A large chunk of this money was spent on activities other than medicines.

The Report said Bokaro Steel, one of the units under SAIL, “In particular spent almost 82 percent of the funds for the medical camps on activities other than medicines. Of the total expenditure of  Rs 10.56 crore, Rs 1.31 crore and another Rs 5.62 crore on public relations activities. Only 18 percent was spent on medicines which defeated the basic purpose of providing medical facilities to underprivileged families.”

While politicians and bureaucrats have dipped their fingers into the CSR pie with regular frequency there have been reports that those in charge of CSR activities in some of the PSUs are cornering funds through illegal deals. In July last year newspapers reported that the anti-corruption branch of the CBI Dhanbad had unearthed a fraud amounting to Rs 1.5 crore in the Bokaro Steel Plant. The CSR department of the BSL in 2008 had sanctioned the amount for the construction of 6.5km road, roadside drain and pond.

Investigations showed that BSL officials had paid around Rs 1.45 crore to Avinash Construction in 2009, a year after the work was allotted to it, and even while the construction work remained incomplete. “Our team has found that Avinash Construction has virtually done no work. It has done a petty job of around Rs 24,000 and has received almost all its payment for the work. How these officials made the payment with closed eyes something which surprises us a lot. It is a scam of Rs 1.21 crore which is a loss to BSL.”

Early this month the Indian Express reported that the internal vigilance department is probing a case of how NALCO  officials favoured a particular private university against prevailing norms over expenditure from CSR and PD fund. It has been reported that Rs 45 lakh from peripheral development fund supposed to be spent on areas like Koraput, where the aluminium major has bauxite mines and refinery, was given to Centurion University for Technology and Management (CUTM), a private university set up in 2010.

The investigation was launched after a complaint was made by the NALCO Employees Forum. Apart from the Rs 45 lakh already released, NALCO has earmarked another Rs 3 crore as endowment fund for the university as part of its CSR activities. NALCO is partnering with the same university for setting up an Indian Institute of Information Technology under public private partnership framework with a financial assistance of Rs 2 crore. The grant of Rs 3 crore as endowment fund came even as several senior managers objected to the proposal in writing. The in-house vigilance department is probing how the then NALCO top management, including director (finance) BL Bagra and others, approved CUTM though it was a relatively new university.

It is evident that these instances have come about because of the utter lack of transparency in CSR spend. Most PSUs are undertaking investments without undertaking need assessment surveys of the community they impact. According to a CAG Report “companies were not doing any need assessment survey in the periphery of their plants to assess requirements of the society and were not planning in structured manner to utilise the funds efficiently…were also not evaluating the impact of their CSR activities on the society.”

Many of the PSUs were merely writing out cheques or making donations in kind without being actively involved in the designing or implementation of the programmes they support. One major problem lies in the CSR Rules framed by the Department of Public Enterprises which has made CSR mandatory for PSUs which are making profits. The Department has laid down the rule that companies must spend the amount set aside for CSR. The rules provide for actions against the company which fails to use its CSR funds.

The emphasis in the Department’s directives is that money must be spent to avoid action not on the usefulness of the investments made. Lacking the staff with knowledge and skills in drawing up and implementing CSR programmes PSUs take the easy route out by writing out cheques or handing out support in kind. This trend has made most CSR interventions by PSUs meaningless bringing little benefit for the people they are meant for.

CSR is not just spending funds. It is about making the company and its employee’s responsible entities. This can be done only when both the company and the employees are actively involved in the framing and implementation of the projects and programmes they finance/fund. Such steps will also help to minimize the interference of politicians and bureaucrats in the spending of funds designated for CSR.

Above all there is urgent need for government to place greater stress on its companies to ensure transparency in all its activities connected with CSR. Government needs to shift its stress on mere spending of CSR funds to performance based CSR projects. There is also need that people impacted by the presence of the industrial unit are made aware of their rights and the responsibilities of business towards them and their community. There is enough evidence to show that people are becoming increasingly aware of the responsibilities of business and are demanding their fulfillment. We witnessed such awakening in Singur, in various places in Orissa, Chhattisgarh and Jharkhand.

I am strongly in favour of mandatory CSR but with strong safeguards against the interference of politicians and bureaucrats.

(Suresh Kr Pramar, Speaker, Trainer, Writer,  CSR Consultant and the Executive Director, Centre for Training & Research in Responsible Business is a veteran journalist presently actively involved in promoting CSR through workshops on Corporate Social Responsibility.  He is regular contributor to INDIACSR. He can be reached at suresh.pramar@gmail.com,sureshpramar@outlook.com 9213133042)

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