By Prof. Colin Coulson-Thomas*

The end of one calendar year and the start of a new one represents an opportunity to take stock of where we are with CSR. Has it been a catalyst in creating more socially aware and responsible businesses? Are CSR initiatives becoming more imaginative and having greater impact? Have legislative, regulatory and other external developments resulted in more responsible business conduct. In India, perhaps it is time to take stock of the impact of CSR requirements in the Companies Act 2013. Is there now greater investment and more innovation in CSR projects than used to be the case? Are directors and boards more aware of the changing social and environmental concerns and priorities of stakeholders?

Importance of Social Acceptance in Business Operations

Many stakeholders today seem more concerned about quality of life, sustainability, climate change, the preservation of endangered species and social issues such as diversity and inclusion. In competitive markets where people have a choice, do companies now need a degree of social acceptance to continue to operate and to avoid challenge, whether in the form of criticism in social and other media, customers taking their business elsewhere, legislative action or potential employees preferring more socially and responsible companies? If adverse publicity can quickly impact on sales, do businesses need a ‘social license’ to remain viable and avoid boycotts?

Corporate Social Responsibility: Legal Compliance vs. Social Responsibility

The forthcoming 10th annual International Conference on Corporate Social Responsibility organised by India’s Institute of Directors is being held in Mumbai. Coming early in the new year the 2016 event represents a good opportunity for various parties to review CSR activities and discuss how directors are addressing changing external expectations of corporate conduct and pressure from legislators and other stakeholders for more responsible behaviour. In relation to the CSR requirements in the Companies Act, 2013, are directors doing just enough to satisfy a legal requirement, or are they thinking more generally about how to be more socially responsible?

Embedding CSR into Corporate Strategy

The 2016 conference’s theme of embedding a CSR mandate into corporate strategy suggests considerations that have applied to CSR activities are important for corporate futures and a matter for the board. Does being a responsible business today involve new considerations? Does it incorporate or replace CSR, or learn from it? Are distinct CSR activities a core element of what being a responsible business is about, or might they no longer be needed when a business as a whole is socially responsible? That there are guidelines in terms of what sort of activities would meet the CSR requirements of the Companies Act 2013 suggests some suspicion that companies might classify activities that would benefit the business as CSR. Yet surely if a project benefits a company as well as an external target group more effort might be devoted to it.

Balancing Stakeholder Interests and Building Relationships

Directors have a duty to the company itself as well as other stakeholders, and in other areas they often strive to achieve outcomes that are beneficial for more than one party. Benefiting multiple stakeholders is a performance indicator. For a board that aims to ensure that corporate activities are both lawful and ethical, but also socially acceptable in today’s business context, what more needs to be done beyond building mutually beneficial relationships with a company’s stakeholders and ensuring they are treated fairly and that offerings represent value for money? How important is it that a business is responsible, seen to be responsible and regarded by others as responsible?

Recognizing the Influence of Stakeholder Groups

Experienced directors should be aware that a board needs to address and balance the interests of different stakeholder groups and build mutually beneficial relationships with them. Some groups may appear to have more power to benefit and/or harm an enterprise than others, but the reputation of a company can influence relations with all of them. Boards ignore external groups at their peril. Smart directors take account of their interests and concerns and try to work with the grain of opinion. They recognise that many people support good causes and want to make a difference. The memberships of stakeholder groups can also overlap For example, customers may also be investors and vice versa. A disgruntled employee might participate in discussion forums on social media or be politically active and able to influence legislators. Hence the value of benefiting multiple groups.

Rethinking CSR Initiatives for Greater Impact

In India CSR expenditure has to satisfy certain conditions to count towards a Companies Act 2% of net profit requirement applicable to certain companies. To achieve sustainability objectives we need to deliver more with less, join up initiatives, collaborate and find ways of simultaneously delivering multiple objectives and benefiting multiple stakeholders. Do tight rules as to what constitutes a CSR initiative and ruling out activities that benefit both a company and an external target group prevent us from doing this? Should we instead be encouraging the effective use of resources that generates a variety of outcomes that benefit both or all parties to relationships? Should we actively promote responsibility initiatives that are beneficial for businesses, their staff and those they are seeking to help? Might such projects attract greater internal interest, commitment and support?

Potential Limitations of Government Initiatives

Government initiatives such as the requirement in India for certain companies to devote a specified portion of net profit to CSR activities are designed to create public value and deliver public benefits. However, is there a danger that specifying a requirement and setting limits as to what will satisfy it may marginalise CSR and act as a break on more general progress towards socially responsible businesses? As is often the case, well meaning initiatives can sometimes be counter-productive. The extent to which the intentions of legislators or regulators are fulfilled and value is delivered will depend upon how those who are subject to the requirements respond.

Shifting Perception of CSR Activities

Companies that initiate CSR activities that are the exception rather than the corporate rule because of an external requirement may become unstuck. Drawing attention to CSR projects in an annual report and other communications may just serve to communicate to external audiences that these activities are a special case and not mainstream activity, i.e. the business is only behaving in a responsible way because of being forced to do so.

Role of Responsible Investment Communities

Members of the asset owner and management communities vary in the extent to which they are concerned about whether their investments meet environmental, social, sustainability and other criteria. Some are very concerned. They use indices that attempt to quantify the extent to which funds and opportunities meet their responsible investment expectations and requirements. Others mainly focus upon traditional concerns with maximising returns and minimising risks, and making sure that any risk involved is not disproportionate in relation to anticipated returns.

Evaluating CSR Impact on Investment Decisions

For the community of asset owners and managers concerned with responsible investment how important is the perceived scale, quality and impact of CSR programmes, initiatives and activities as opposed to responsible behaviour across the full range of a company’s operations? When investment portfolios are assembled, how significant are the aims of CSR policy and the achievements of CSR teams compared with overall corporate strategy and its implementation and responsible business behaviour? Is the market a company is in, the nature of its products and services, and corporate conduct and resulting reputation more important than what it devotes 2% of its net profit to if it is subject to the provisions of the Indian Companies Act 2013? For example, would an ethical fund be more or less likely to invest in a tobacco company because of its CSR projects?

Encouraging Innovation in Social Responsibility

Governments considering measures to encourage more responsible conduct need to ensure that any laws, rules or guidelines they produce do not limit responsible business endeavour to those activities labelled as CSR and preclude more cost-effective and resource-efficient solutions that would deliver a greater range of benefits to multiple stakeholders, including a company itself and hence engender greater commitment to them and higher investment in them. Social responsibility laws, rules and guidelines should liberate rather than constrain. Involvement in CSR initiatives should help people to raise their ambitions and think outside of the box. A CSR team could become an innovation unit for a responsible business.

About the author:

Prof. Colin Coulson-Thomas of the University of Greenwich and Director-General, IOD India, UK and Europe Operations, holds board, public and academic appointments and leads the International Governance Initiative of the Order of St Lazarus. He is a member of the General Osteopathic Council, chair of the council’s Education and Registration Standards Committee and chair of the Audit and Risk Committee of United Learning. He has helped directors in over 40 countries to improve board and corporate performance. Author of over 60 books and reports he has held professorial appointments in Europe, North and South America, the Middle East, India and China. Colin was educated at the LSE, London Business School, UNISA and the Universities of Aston, Chicago and Southern California, and is a fellow of seven chartered bodies.

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