By Riddhi Ghosh
A lot of noise has been raised off late, with the clarification issued from the Ministry on CSR modus operandi for Indian corporate that creating shared value (a management concept that has been devised by Michael Porter and is globally acclaimed) should not be guiding thought behind CSR framework of companies. Section 135 of revised Indian Companies Act 2013, has made CSR spending regulatory for certain sized companies.
With the government defining broad areas of expected social intervention from the business sector operating in India, it’s a critical hand holding phase on part of the government to stop disdainful interpretation of the clause included as a part of expanded note to the regulation of “liberal interpretation”. Regulations are nothing new in a country like India.
But what makes Section 135 and its implementation unique, is the comply-or-explain perspective. A regulation that forces you to share some of your profits for nation building and developmental sectors, with no promised tax benefits or outstanding penalty on non-compliance.
Before the old debate rakes up to the title of this article, that sharing your value once it is created is no longer the way of doing business in current global scenario, let us get it explained.
Creating shared value is a much coveted business state, and can be achieved only after graduating a few initial steps of foundation building (See Figure 1). A society where the perception of value is still awkwardly skewed, with bias towards monetary and personalized gains, the philosophy of creating shared value is still a practice of immature novices. The stakeholders to creating such an environment of shared value, needs to be well aware of their own rights, limitations and capabilities.
It’s an oft quoted statistic that India houses one fifth of the world’s poor population. It’s not only the poverty of wealth, it’s the lack of knowledge, access to the basics of living, it’s being ill equipped to protect one own self, that creates the disparity in stakeholder engagement with the business community who outsmart the rest. While the more developed nations practice CSR and sustainability and churn out oodles of tested and successful mechanisms of stakeholder engagement, we in India are yet to make a clear understanding between prioritizing shareholders and stakeholders. Thus in a social ecosystem which is still unbalanced, the concept of creating shared value can bring in the demon of exploitation and abuse to our homes at the snap of your fingers.
CSR as a corporate philanthropy function has been in practice and its root dates back to ancient times. The origin of such acts of ethics and kindness stemmed from our social genetics and religious perceptions. The rich and the respected conducted such ad hoc social good exercises to appease gods and also create an aura of respect from the commoners. This later translated to the corporate world in terms of looking after employee benefits and to be accepted ethically in the society. With rich experiences of being ‘certified corporate philanthropist’, our business community has undergone a natural evolution.
Subsequent attempt is to graduate to a level where building healthy business-socio environment is still primarily dictated by compliance requirements with foundation laid in thoughts of creating sustainable future while attempting to manage risks.
Under the prevailing circumstances, creating successful CSR policies while operating at teething business competition seems like again contradicting the very founding philosophy of the CSR regulation. Selecting an area to focus on from broad thematic areas (See Figure 2: Schedule VII of Indian Companies Act 2013), developing projects, liaising with competent NGOs, reporting on impact – all seems to be an arduous task with no immediate tangible benefits and with ingredients of adding cost to business.
The regulation seems even more demanding for foreign companies doing business in India (except for very large sized MNCs who have become too Indianised by now), who work on calculated resources in a foreign location named India. They feel this is another way to create tension and alienate from the market. On the contrary; the basic tenet of bringing about such a regulation by the government was to create an inclusive socio-business model. For foreign origin entities it is a systematic way of collaborating with the local community to earn local confidence – a necessary requirement for obtaining the requisite license to operate.
Thematic Areas of CSR as per Schedule VII of Indian Companies Act 2013
1. Eradicating hunger, poverty and malnutrition, promoting health care, sanitation & safe drinking water
2. Promotion of education, special education and vocational skills
3. Gender Equality, Women empowerment , senior citizens and economically backward groups
4. Protection of National Heritage, art and culture
5. Benefits to armed forces veterans, war widows
6. Ensuring environmental sustainability, ecological balance, wildlife & natural resources conservation
7. Technology incubators within academic institutions
8. Rural sports, Paralympics and Olympic sports
9. PM National Relief Fund and any other funds setup by the Central Govt. for socio economic development & welfare of SC/ST/OBC
10. Rural Development projects
11. Urban slum development
Figure 2 : Schedule VII Indian Companies Act 2013, as on August 2014.
What needs to be kept in mind, while designing CSR policies and projects is perhaps where your established values of business can be shared with the sole purpose of capacity building and social development. For instance volunteering practice from one of the biggest business houses of India gives us a cue to such an arrangement. The business house not only finances a vocational training foundation for under privileged youth in Karnataka, they let their staff volunteer for basic administrative staff development training courses. The corporate house having its own internationally famous software arm, contributes to not only by creating robust CSR programs but also contributes to real developmental task in terms of sharing established value in terms of skills on which it has considerable mastery in. It’s contributing to the development process sharing resources which are richly available in the organization without adding on to its cost of doing core business.
Thus CSR projects of organizations can be aligned in areas where they can directly (monetary) or indirectly (resource and expertise sharing) be implemented to generate best possible impact. This also aids the monitoring process and being an inclusive member of the development story, rather than merely outsourcing the work to consulting groups or NGOs creates a feeling of belonging.
With a few runs of such successful projects, and the visible impact created – it will no longer need anyone to explain the benefits of practicing CSR. This specially reminds of the group who were very vocal and vehemently objected that this sharing of 2% of hard earned profit is unfair on part the government when the business is under severe pressure! Take pity at their short sightedness is all that we can say. The current state of business may rob you off your entire business castle of dreams if remedial steps are not taken now. And as it is said, a stitch in time saves nine. The CSRian habit will generate far greater benefits than you can show with your accounting calculations or forecasting theories from B-school managers and that too not distant in future.
This is a necessary step before qualifying to think on next level of business maturity in terms of creating shared value. To ‘create’ a system with multiple stakeholders, each needs to be clear of their priorities and rights. Else the effort is an unbiased one-sided one. It’s like fighting an empty bare feet with swords and arrows, when you are well aware that the other side is equipped with sophisticated rocket missiles. Create some level of understanding, create scientific feedback loops and nurture capacity before delving into solving the big problem.
With all such clarifications and explanations on why the current regulation on CSR has been made and what is the pitch desired to implement the same, we hope the conscious thought of crafting CSR in process of creating shared value being disjointed is apparent. It’s a challenge for all parties with the curtain being already drawn up and the stage is visible to the world, we have no more option to run away from the performance. We need to perform and that too with confidence and perfection, with ears waiting to hear the resounding applause from the world audience. The story has been scripted in India, the actors in the drama are Indian and success of the show rests on Indians as well.
(The author is an electrical engineer, having worked in key position of international development with a Thai-Japanese manufacturer. Currently she is trained with IICA as a professional CSR trainer and authors articles on social sector developments in India and Thailand)