“When the wind blows, there are those who build walls and then there are those who build windmills.” A long time ago, when the governments of the world first came into play, it was seen as their primary and exclusive function to provide support to the needy sections of the society and to undertake necessary steps for their upliftment. Gradually these countries starting developing and the world started to move towards a model of higher profitability and economic integration. This was done in order to sustain the modern world economics, and most of the countries (the Soviet Union was an exception) started to move towards financial well-being and performing business-related functions. Even though this helped in fastening the process of economic development, it increased the income disparities and the gap between the haves and have-nots. This is where Corporate Social Responsibility comes into play.
The term “Corporate Social Responsibility (CSR)” can be referred to as a corporate initiative to assess and take responsibility for the company’s effects on the environment and impact on social welfare. Also referred to as “Corporate Citizenship”, CSR is not mere charity events or donations carried out by the company. It is a way of conducting business, by which corporate entities integrate economic, environmental and social objectives of the society with the company’s operations and growth.
In April 2014, India became the first country in the world to have Corporate Social Responsibility mandatory and to have a CSR legislation. The law is applicable for companies having either at least a net worth of INR 500 crore, or a Turnover of at least INR 1000 crore; or a Net profit of at least INR 5 crore in a financial year. The law mandates that all such companies shall spend, in every financial year, at least 2% of the average profits of the preceding three years to pursue their CSR policy. In addition, companies must have a “CSR Committee” and should also include a report of CSR activities in their annual reports.
The companies do realize that CSR is good even for them as they operate in a society, whose problems are not exclusive to them. By fulfilling their corporate social responsibility, they realise that they will be the beneficiaries both in the short as well as the long run. In the short run, the image of the company in the eyes of the public will improve immensely as they will see the company as an institution which tries to improve the lives of people around them, rather than a mere corporate entity that uses the money of the public for its own profit and expansion. In the long run, it would lead to the establishment of a society which would be more developed and prosperous and which would, in turn, be more demanding because of a better standard of living and would ultimately help the company grow. According to reports by KPMG in 2018, close to 99% of the 100 companies surveyed successfully implemented their planned CSR policy, up from 55% in 2014-15. The report highlighted that over 90% of companies have stand-alone CSR committees. This shows that the companies are on the right trend although a lot is still to be done.
Due to the ambiguous and imprecise laws and penalties against the defaulters of the law, the legalization of CSR has recently come under scrutiny and the recent deliberations and proposed amendments have made us question whether CSR should be made mandatory by law. Committees have proposed to make it a tax-deductible expense and treat its non-compliance as a civil offense, but any significant measure is yet to be taken. Talking about the need to legalize the CSR laws, it is imperative to understand the importance of the same. CSR promotes a society with more equitable distribution of income thereby promoting the goal for a socialist society without compromising on the concepts of capitalism which calls for profitability and revenue generation. It does not anyhow hamper those who are already concerned for society and, at the same time, makes the others contribute towards societal good as well. And since the law mandates the use of a percentage of profits for the purpose of CSR, it would not anyhow make a company run into loses. So, in my personal opinion, it must be legalized. All it would do is to take a small fraction of money from well-to-do organizations and distribute it for the upliftment of the poor. We are well aware of the phrase “The needs of the money outweigh the needs of the few”, and CSR is just a small step by the few (rich) for the many underprivileged sections of society.