Legal Aspects of Business-Corporate Social Responsibility

7/29/2019 Legal Aspects of Business-Corporate Social Responsibility

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Legal Aspects of Business Project

MBA-General

Amity Business School, Noida

Corporate Social Responsibility

Submitted to: Mrs Shinu Vig Submitted by: Anvita Bhatnagar (B3)

Renuka Chaudhary (B13)

Nakul Arora(B23)

Akshay Neelkantham(B33)

Makrand Agrawal(B43)

Amit Chahal(B53)


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Certificate

This is to certify that Anvita Bhatnagar, Renuka chaudhary, Nakul Arora, Akshay

Neelkantham, Makrand Agrawal and Amit Chahal all students of 1st year MBA

General of Amity Business School have completed their Legal Aspect of Businessproject on Corporate Social Responsibility under my supervision. They have

shown utmost sincerity in the completion of this project. I Mrs Shinu Vig hereby

certify that this project confirms to the guidelines issued by the Amity Business

School.

Mrs Shinu Vig


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Acknowledgement

We would like to express our heartfelt gratitude towards our LAB teacher Mrs

Shinu Vig for giving us the opportunity to work on the project. It was truly

knowledgeable and enriching experience. Thank you once again maam for

entrusting us with the project and for all the help and support throughout the

project.

Anvita Bhatnagar (B43) Renuka Chaudhary(B13)

Nakul Arora (B33) Akshay Neelkantham( B33)

Makrand Agrawal(B43) Amit Chahal(B53)


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Index


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Corporate social responsibility

Developing CSR takes a long time. There is no simple definition because CSR has no

definite limits and it is voluntarily established. It is a trend which is focused on the

change from short-term tasks to long-term tasks. In CSR companies behavior is such

that inside needs and outside needs are covered. They contribute to tenable and

acceptable growth and generally help to improve the overall situation of society. CSR

integrates the attitudes, practices and procedures into the company strategy at the

highest level of management. It requests a change from the profit only level to the

wider level Three Pspeople, planet, profit. The triple-bottom-line means that the

company is focused on economic growth and environmental and social aspects of its

activities. The company is a part of society and society influences it. There are a lot of

definitions of CSR but here are the most well-known:

CSR is a voluntary integration of the social and environmental aspects in the

everyday company activities and relations with the stakeholders .

CSR is a way of an enterprise which follows ethical, legal, commerci al and social

expectations .

CSR is a continual obligation of companies to be ethical and contribute to economic

growth and at the same time improve the quality of employees lives and their families

and local and global society, .

Three Fundamental Principles of CSR

CSR is based on three fundamental principles.

They are economic, social and environmental. Each part of CSR contains a lot of

different activities depending on the type of enterprise and the requirements of

stakeholders.

Economic area:

Transparent enterprise is expected from the company. A positive relationship with

investors, customers, suppliers and others business partners is also expected. The

impacts of the company on the economy at local, national and global levels are

monitored.

Ethical codex creation

Transparency


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Best practice management

Corruption rejection

Relation with stockholders

Relation to customers / consumers

Relation to suppliers

Relation to investors

Protection of intellectual property

Social area :

In the social area, behaviour is focused on the attitude to employees and on supporting

the local community. The company influences the standard of living, health, safety,

education and cultural development of citizens.

The company is aware of its impact on the living and inanimate nature in the

environment. This includes the ecosystem, land, air and water. There is an assumption

that the company will protect nature and natural resources.

Environmental area :

Stakeholders

Environmental groups

Otherenvironmental groups

Environmental area CSR activities

Environmentally friendly manufacturing, products and services

Compliance with regulations and standards (ISO, EMAS, etc.)

Environmentally friendly company policy (recycling, using of environmentally friendlyproducts)

Reduction of impacts on environment

MAIN FEATURES OF CSR

Triple-bottom-line economic, social and environmental.

Voluntary all activities are done voluntarily.

Stakeholders dialogue integration of all participants.


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Long-term period all activities are done over a long-term period.

Credibility increasing company credibility.

We have seen the business sector generating wealth and value for the shareholders in

the last sixty years, but simultaneously we also have the problems of poverty,

unemployment, illiteracy, malnutrition etc. facing the nation. The corporate growth is

sometimes seen as widening the gap between the India and Bharat through its income

skewing capability. This gap needs to be bridged. While the Government undertakes

extensive developmental initiatives through a series of sectoral programs ,the

business sector also needs to take the responsibility of exhibiting socially

responsible business practices that ensures the distribution of wealth and well-being of

the communities in which the business operate. The subject of Corporate Social

Responsibility has evolved during last few decades from simple philanthropic

activities to integrating the interest of the business with that of the communities in

which it operates. By exhibiting socially, environmentally and ethically responsiblebehavior in governance of its operations, the business can generate value and long

term sustainability for itself while making positive contribution in the betterment of the

society.

The subject of Corporate Social Responsibility has evolved during last few decades

from simple philanthropic activities to integrating the interest of the business with

that of the communities in which it operates. By exhibiting socially, environmentally

and ethically responsible behavior in governance of its operations, the business can

generate value and long term sustainability for itself while making positive contribution

in the betterment of the society.

.What is the importance of corporate social responsibility?

1) Organizations understanding their role in developing a society

2) Awareness among business houses, corporate bodies, and the people.

Versatile, profitable, and dynamic businesses are the driving forces that build theeconomy of the country. We must remember that the growth of a country purelydepends on the growth of the society and the people in the society.

There is a close relationship between CSR and the law. The main instrumentgovernments use to address a firms social, environmental and economic impacts is thelaw. Many countries have a wide range of laws, whether at the national, state or locallevels of government, relating to consumers, workers, health and safety, human rightsand environmental protection, bribery and corruption, corporate governance andtaxation. A firms CSR approach should begin by ensuring fu ll compliance with thoselaws already in place. No matter how good a CSR policy may be, failure to observe the


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law will undermine other good efforts. Looking ahead, the CSR activities of firms can beseen as a proactive method of addressing potentially problematic conduct before itattracts legal attention.

A key feature of the emerging CSR debate is the difference between a compliance

mentality (i.e., only doing those things that are required) and a value driven mentality(i.e., using a CSR approach to innovate and seek new markets). Some commentators

argue that a compliance-based approach does not help business, because it tends not

to drive innovation and the out of the box thinking they see as necessary in the rapidly

changing business world. That said, a number of specific legal aspects are worth

mentioning.

Performance reporting and the law: In many jurisdictions there are laws in

place requiring firms in particular sectors to publicly disclose certain of their

practices and activities. The U.K. Companies Act 2006, for example, requires

publicly-listed companies to report on a number of specific issues where they arenecessary to understanding the companys business. These include

environmental matters (including the impact of the companys business on the

environment), the companys employees, social and community issues, and risks

through the company supply chains. Similar provisions also exist in France and

across the EU.

Corporate governance and disclosure: Social and environmental issues are

increasingly being seen as integral components of the corporate governance

agenda. In many countries firms issuing securities are required to publicly

disclose their corporate governance practices and comply with local guidelines

on the subject. A 2005 report by the international law firm Freshfields, Bruckhausand Deringer concluded that under the current legal systems of many countries,

directors might be in breach of their fiduciary duties if they did not take into

account environmental, social and governance issues.

Bribery: CSR also stresses that firms should adopt responsible practices

wherever they operate. National laws making it illegal to bribe foreign officials to

obtain or retain business on the subject are often based on the 1997 OECD

Convention on Combating Bribery of Foreign Public Officials in International

Business Transactions, and the 2003 UN Convention Against Corruption.

Requirements under different jurisdictions: It is important to be aware of the

varying legal requirements of different countries. In the U.K., for example,

legislation requires pension fund trustees to publish a comment in their

investment statements on the extent to which their investment policies address

social, ethical and environmental issues. As noted above, in European countries

laws require companies to report on their social and environmental performance.

In the U.S., a number of firms have been sued under the Alien Tort Claims Act

(e.g., Doe v. Unocal), which raises the possibility that corporate liability could be


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established through transnational civil litigation. The U.S. has also significantly

revised its corporate governance legislation in recent years, in particular, passing

the Sarbanes-Oxley Act in 2002 which establishes stricter standards for all U.S.

public company boards, management and public accounting firms. At the United

Nations, a Special Representative on Business and Human Rights to the

Secretary General was appointed in July 2005. The Special Representative is

expected to identify standards of corporate responsibility and accountability,

enhance understanding and recognition of these standards, and issue

recommendations on future United Nations work regarding business and human

rights issues.

Parliamentary engagement: Government interest in CSR issues takes many

forms. Some governments have issued CSR guidance and play a wide range of

partnering, facilitating and profiling roles. In some countries, parliaments have

also become engaged. On 13 March 2007, the European Parliament adopted aresolution on CSR in which it expressed the view that increasing social and

environmental responsibility by business, linked to the principle of corporate

accountability, represents an essential element of the European social

modelThe Australian government conducted two high-level enquiries into the

relationship between business and CSR in 2006. The Parliamentary Joint

Committee on Corporations and Financial Services enquiry Corporate

Responsibility: Managing risk and creating value recommended the wide

adoption of corporate responsibility, and urged industry associations to actively

promote CSR to their members. The Corporations and Markets Advisory

Committee report The Social Responsibility of Corporations, noted that CSRissues presented a conundrumbetween the business imperative and wider

societal pressure. A balanced approach, it concluded, under which companies

are judged according to their overall economic and other contributions and

impacts, including how they manage social and environmental issues relevant to

their business, is more productive and meaningful.A Spanish parliamentary sub-

commission also conducted a review into measures to promote CSR, and

reported in 2006.


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Does Corporate Social Responsibility Increase Profits?

It is generally held that corporate social responsibility (CSR) could increase companyprofits and thus most large companies are actively engaged in it. But few executivesand managers are aware of the research on this important subject .The research doesshow that it may improve profits. However, linking profit growth to abstract variables that

are frequently difficult to define is a challenging task.

Most executives believe that CSR can improve profits. They understand that CSR can

promote respect for their company in the marketplace which can result in higher sales,

enhance employee loyalty and attract better personnel to the firm. Also, CSR activities

focusing on sustainability issues may lower costs and improve efficiencies as well. An

added advantage for public companies is that aggressive CSR activities may help them

gain a possible listing in the FTSE or Dow Jones Sustainability Indexes, or other similar

indices. This may enhance the companys stock price, making executives stock and

stock options more profitable and shareholders happier.

Advantages of CSR:

A good reputation makes it easier to recruit employees.

Employees may stay longer, reducing the costs and disruption of recruitment and

retraining.

Employees are better motivated and more productive.

CSR helps ensure you comply with regulatory requirements.

Activities such as involvement with the local community are ideal opportunities to

generate positive press coverage.

Good relationships with local authorities make doing business easier. See the page

in this guide on how to work with the local community. Understanding the wider impact of your business can help you develop new

products and services.

CSR can make you more competitive and reduces the risk of sudden damage to

your reputation (and sales). Investors recognize this and are more willing to finance

you.

Disadvantages of CSR

Corporate social responsibility (CSR) is a prominent 21st century business ideology that

heightens expectations of companies regarding social and environmental standards.The results of CSR compliance are generally viewed as a good thing by most

companies. Challenges lie in allocating time and resources necessary to develop a CSR

approach that meets governmental and social standards and achieves compliance with

informal CSR guidelines related to social and environmental responsibility.
http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1075408527&r.i=1075408491&r.l1=1074404796&r.l2=1074446322&r.l3=1075408468&r.t=RESOURCES&type=RESOURCEShttp://www.businesslink.gov.uk/bdotg/action/detail?itemId=1075408527&r.i=1075408491&r.l1=1074404796&r.l2=1074446322&r.l3=1075408468&r.t=RESOURCES&type=RESOURCES


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Role of Profit

One of the biggest features addressed by CSR is its intent to cause companies to

recognize responsibilities to stakeholders outside of shareholders. This includes

customers, communities, employees and suppliers. While proponents of CSR point out

the long-term benefits of taking care of these core relationships, shareholders are oftendeterred at the notion that companies will invest in anything that does not create

immediately obvious financial gain. With CSR, detecting measurable bottom line

benefits is a challenge as social and environmental programs are hard to account for

with regard to financial gain.

Competitive Disadvantage

One of the most common arguments companies make when indicating reluctance to

CSR policies is the disadvantage it causes against companies that do not. In other

words, if company A does its part to invest resources to take care of its communitiesand the environment and company B does not, company B retains its resources,

including money, for other business pursuits. Thus, without strict adherence industry

wide, some companies argue that they cannot fall behind by putting money into CSR

programs.

Loss of Focus

A main driver at the onset of CSR was increased interest in making the customer a

primary focus of business operations. This coincides with continued realization that

customer retention and loyalty are keys to long-term business success. Detractors of

CSR as a major component of corporate governance argue that guidelines have

expanded beyond this basic initial emphasis. David Vogel points out in his "CSR

Doesn't Pay" article for Forbes, that many companies that abide by CSR guidelines do

so more from fear of public backlash than because they believe it is good for long-term

business performance. He adds that most parties generally agree that taking care of

customers is good in the long run, but expensive requirements in human rights,

environmental sustainability and community development are too much to ask of many

companies.

Lasting Impact

How long CSR will remain a prominent business concern is a common question asked

by those who argue against CSR as a major concern with corporate governance.

According to the My Efficient Planet website, CSR has existed for more than 50 years.

However, its prominence as a major business consideration has certainly increased in

the 21st century due to heightened awareness of ethical issues in business and

environmental preservation standards. Detractors argue that CSR emphasis is a short-


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term fad in response to prominent scandals like Enron, and current interest in green-

friendly practices.

Planning the CSR initiative

A long-term Corporate Social Responsibility Plan needs to be prepared matchingwith the long-term business plan;

This may be broken down into short-term and medium term plans, specifying

activities to be undertaken, budgets allocated, responsibilities and authorities

defined, and measurable results expected.

Implementation

ThePlan must clarify implementation guidelines involving:

Participation of Voluntary Organizations, Base-line Surveys Documentation of the experience Setting Up a CSR hub Monitoring and Evaluation.

Corporate Social Responsibility IN INDIA

Among other countries India has one of the richest traditions of CSR. Much has been

done in recent years to make Indian Entrepreneurs aware of social responsibility as an

important segment of their business activity but CSR in India has yet to receive

widespread recognition. If this goal has to be realised then the CSR approach ofcorporate has to be in line with their attitudes towards mainstream business- companies

setting clear objectives, undertaking potential investments, measuring and reporting

performance publicly.

The four phases of CSR development in India:

The history of CSR in India has its four phases which run parallel to India's historicaldevelopment and has resulted in different approaches towards CSR. However thephases are not static and the features of each phase may overlap other phases.

The First PhaseIn the first phase charity and philanthropy were the main drivers of CSR. Culture,religion, family values and tradition and industrialization had an influential effect onCSR. In the pre-industrialization period which lasted till 1850, wealthy merchants shareda part of their wealth with the wider society by way of setting up temples for a religiouscause. Moreover these merchants helped the society in getting over phases of famineand epidemics by providing food from their godowns and money and thus securing anintegral position in the society.With the arrival of the colonial rule in India from 1850s
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onwards the approach towards CSR was changed. The industrial families of the 19thcentury such as Tata, Godrej, Bajaj, Modi, Birla, Singhania were strongly inclinedtowards economic as well as social considerations. However it has been observed thattheir efforts towards social as well as industrial development were not only drivenselfless and religious motives but also influenced by caste groups and political

objectives.The Second Phase

In the second phase, during the independence movement, there was increased stresson Indian Industrialists to demonstrate their dedication towards the progress of thesociety. This was when Mahatma Gandhi introduced the notion of "trusteeship",according to which the industry leaders had to manage their wealth so as to benefit thecommon man. "I desire to end capitalism almost, if not quite, as much as the mostadvanced socialist. But our methods differ. My theory of trusteeship is no make-shift,

certainly no camouflage. I am confident that it will survive all other theories." This wasGandhi's words which highlights his argument towards his concept of "trusteeship".

Gandhi's influence put pressure on various Industrialists to act towards building thenation and its socio-economic development.[4]According to Gandhi, Indian companieswere supposed to be the "temples of modern India". Under his influence businessesestablished trusts for schools and colleges and also helped in setting up training andscientific institutions. The operations of the trusts were largely in line with Gandhi'sreforms which sought to abolish untouchability, encourage empowerment of women andrural development.

The Third Phase

The third phase of CSR (196080) had its relation to the element of"mixed economy",emergence ofPublic Sector Undertakings (PSUs) and laws relating labour and

environmental standards. During this period the private sector was forced to take abackseat. The public sector was seen as the prime mover of development. Because ofthe stringent legal rules and regulations surrounding the activities of the private sector,the period was described as an "era of command and control". The policy of industriallicensing, high taxes and restrictions on the private sector led to corporate malpractices.This led to enactment of legislation regarding corporate governance, labour andenvironmental issues. PSUs were set up by the state to ensure suitable distribution ofresources (wealth, food etc.) to the needy. However the public sector was effective onlyto a certain limited extent. This led to shift of expectation from the public to the privatesector and their active involvement in the socio-economic development of the country

became absolutely necessary. In 1965 Indian academicians, politicians andbusinessmen set up a national workshop on CSR aimed at reconciliation. Theyemphasized upon transparency, social accountability and regular stakeholderdialogues. In spite of such attempts the CSR failed to catch steam.
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The Fourth Phase

In the fourth phase (1980 until the present) Indian companies started abandoning theirtraditional engagement with CSR and integrated it into a sustainable business strategy.In 1990s the first initiation towards globalization and economic liberalization wereundertaken. Controls and licensing system were partly done away with which gave a

boost to the economy the signs of which are very evident today. Increased growthmomentum of the economy helped Indian companies grow rapidly and this made themmore willing and able to contribute towards social cause. Globalization has transformedIndia into an important destination in terms of production and manufacturing bases ofTNCs are concerned. As Western markets are becoming more and more concernedabout and labour and environmental standards in the developing countries, Indiancompanies who export and produce goods for the developed world need to pay a closeattention to compliance with the international standards.

With the rapidly changing corporate environment, more functional autonomy,

operational freedom etc., CPSEs today are required to adopt CSR as a strategic

tool for sustainable growth

CSR in the present context, means not only investment of funds for social

activities but also integration of business processes with social processes.

In order to address the social needs of the community, viable projects need to be

identified to meet its requirements.

CPSEs may approach Corporate Social Responsibility as a professional

management process with a long-term strategy integrating it with corporate

strategies.

CSR activities may be planned in parallel to the business plan, looking at everypossible opportunity to link and integrate business plans with the social and

environmental concerns available

INDIAS REGULATORY HISTORY: TRANSPLANTING CORPORATE LAW

Indias current system of corporate governance is something of a hybrid. Like many

post-colonial countries, when India first gained its independence in 1947, it opted for a

socialist governance structure with many industries and enterprises controlled by the

state.In 1991, however, India experienced a massive financial crisis. The IMF agreed togrant India the loans it needed if it would liberalize its economy and privatize most

sectors.Since then, Indias economy has been growing at a rapid pace. To facilitate

foreign direct investment, India has lifted most of its recently enacted corporate law from

liberal American and British models. The economy is now functionally capitalist,

although the constitution remains socialist.It is largely this divide between adeveloping,
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once-socialist country with an impoverished populace and its booming, capitalistic

aspirations that the 2011 Companies Bill attempts to navigate.

Corporate Missteps and Government Responses: From Bhopal to Dabhol:

The public health disaster at Bhopal and the human rights fiasco at Dabhol, form the

backdrop for any discussion of corporate social responsibility in India.

The Bhopal Disaster:

Since the gas was highly toxic, the leak killed around 3,000 residents of the Madhya

Pradesh state in its immediate aftermath; the long-term death toll is estimated at

20,000, with as many as 100,000 more suffering from crippling disabilities.Union

Carbide eventually agreed to pay a $470 million settlement to the Indian government in

1989, although American executives continually refused toappear before Indian courtsfor criminal proceedings.Amnesty International report from 2004 claims that30% of

claims for injuries have been rejected, around 16,000 claims [remained] outstanding,

and most of the successful applicants received minimal amounts of compensation.

The Dabhol Disaster:

Ten years later, in 1993, Enron agreed to contract with the state government of

Maharashtra to build a multimillion-dollar power plant in Dabhol; at the time, India was

only able to provide power for five percent of its population.The plant was set to be the

largest Foreign Direct Investment in India at the time.When the Indian public learned

about the deal, there was massive protesting over handing foreign companies such a

profitable venture rather than using local labor.180 peaceful protestors were allegedly

beaten and arrested outside the companys gates.The price of fuel for the plant soared,

and the Maharashtra government was unable to pay the required price for electricity.

Enron sued on their contract, but the company, in the midst of its own scandal in the

United States, had to declare bankruptcy in 2001 before the lawsuit reached a

resolution. The Dabhol plant was subsequently bought by the state in an effort to save

the project.

THE PATH TO AND FROM MANDATORY CSR:

The 2009 Companies Bill and its 2011 counterpart represent the first major effort at

comprehensively overhauling corporate law in India since 1956.It will be landmark

legislation for a BRICS country, and the Indian legislature hopes that the Bill will pass

through Parliament during the budget session in Spring 2012.As one might expect, the

entire project is proceeding in the shadow of ever-growing foreign investment in India.

The Bills Statement of Objects and Reasons dwells on growth and international


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investment at some length;its authors seem painfully eager to impress the global

business community. At the same time, the Bill proceeds in the wake of Bhopal and

Dahbol, as well as the more recent Satyam accounting scandal (akin to an Indian

version of Enron).

Despite Indias current left-leaning government, the bill is extremely economically liberaland pro-business. The mandatory CSR proposal, then, seems something of a

regulatory oddity, inserted by the finance committee after reviewing the Bill and adopted

enthusiastically by a fledgling Minister of Corporate Affairs. As one of the few elements

about the Bill that is uniquely Indian, its inception and context deserve some

examination.

The Bill observes that:

The expansion and growth of the Indian economy has . . . generated considerable

interest in the international investing community. However, there is a need for sustaininggrowth in a globalized and competitive environment. The increasing options and

avenues for international business, trade and capital flows have made it imperative for

the growing Indian economy to not only harness its entrepreneurial and economic

resources efficiently but also to be competitive in attracting investment to sustain the

impressive growth recorded by it in recent years. Many investors are also looking

towards the statutory and regulatory framework for the corporate sector in the country

while deciding on their investment options.

Yet it is difficult, as a country battling with poverty and inequality, to absorb so many

costs and risks without asking for anything in return.The LokSabhas legislative brief for the Bill highlights several major changes proposed

in the Bill to achieve its liberalizing goals, as well as a few concessions in favor of the

Indian people. The major aims of the Bill are to decrease regulation and to shift the

onus of oversight onto shareholders. The Bill makes some effort to address

corporategovernance in general through Western mechanisms such as formal, impartial

audits and an increased number of independent directors on boards.

The Bill, also allows shareholders to band together and file class action lawsuits, as this

kind of tort framework is currently unavailable in India, and it establishes a National

Company Law Tribunal to expeditiously handle these corporate lawsuits. It is, perhaps,worth noting that class action lawsuits will generally only be available to shareholders

not to the average Indianand that companies themselves have long advocated for a

more expeditious corporate law system, as it would reduce the uncertainty inherent in

international litigation. The Bill, then, may be even more pro-business than it seems at

first glance.


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The Specter of Mandatory CSR

The changes listed in the previous Section were the major legal revisions laid out by the

original Bill, as proposed by the Ministry of Corporate Affairs. The Bill then went to

Indias Finance Committee for review before being reported to Parliament. The Finance

Committee, perhaps realizing the popular backlash that might result from such anunabashedly pro-business bill, inserted several new clauses to make the bill slightly

more pro-development.

The original proposal required moderate-sized and large companies to set aside two

percent of their profit margin averaged over the past three years on socially responsible

expenditures. The proposal gave no guidance as to what corporate social

responsibility meant in the context of the Bill, and provided no enforcement mechanism

other than mandated reporting:In response to the Committees overwhelming concerns,

the Ministry of Corporate Affairs have agreed that the Bill may now include provisions to

mandate that every company having [(net worth of rupees 500 crore or more, orturnover of rupees 1000 crore or more)] or [a net profit of rupees 5 crore or more during

a year] shall be required to formulate a CSR Policy to ensure that every year at least

2% of its average net profits during the three immediately preceding financial years shall

be spent on CSR activities as may be approved and specified by the company. The

directors shall be required to make suitable disclosures in this regard in their report to

members.

The Ministry wanted shareholders to be engaged in determining how to expend the

CSR funds and envisioned a system in which each industry would contribute in a

manner commensurate with their expertise. Chemical companies, for example, mightundertake environmental initiatives, while IT companies could further technology

education. The Minister, Murli Deora acknowledged readily that this was the first time

and historically it may be the first time in the world that a country considered mandating

expenditures for the public good, rather than simply taxing companies or leaving them

to their own devices. He also acknowledged that there was an argument as to whether

the Government should mandateanything, but the Ministry, at least initially,

enthusiastically adopted the Committees mandatory proposal.

Corporate Backlash:

Most of India Inc. was immediately up in arms. The Confederation of Indian Industry

asserted, "The law should not specify any amount to be spent on CSR activities. It

should be left to the decision of the board."Other companies echoed that sentiment,

claiming that making CSR mandatory takes away from its core principles. What

companies spend on community welfare, education, health, development and

environmental activism is for them to decide.Infosys Technologies CEO Kris


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Gopalakrishnan, the Managing Director of Sonata Software B. Ramaswamy, Wipro

Chairman AzimPremji, and Piramal Group Chairman Ajay Pirama, all openly spoke out

against the measure.

Voluntary CSR in India, however, has a mixed track record at best. In 2006, despite its

economic boom, India spent only $5 billion, or 0.6 percent of its GDPon corporateresponsibility .Many companies claim to have CSR policies in place: eighty percent of

the private multinationals and half of the private national companies inIndia.Yet most

organizations cannot or will not report exactly how much they spend on CSR.They claim

that there is no relationship between their profits and CSR, and that the board has a

right to determine CSR spending on an ad hoc basis.

The Bill now requires the boards of moderate-sized and large companies to convene a

Corporate Social Responsibility Committee and to approve a Corporate Social

Responsibility Policy. This policy must be disclosed and posted on the companys

website. The Bill even gives some guidance as to what constitutes CSR, although thedefinition remains broad. Schedule VII of the Bill lists several possible genres of CSR

expenditure, ranging from eradicating extreme hunger and poverty to promotion of

education to ensuring environmental sustainability. The media expects the Bill to pass

in the 2012 budget session.

Indias proposal, while unusual, could be viewed as a reasonable effort at furthering

development and equality while avoiding imposing additional taxes as such.

THE EFFICACY OF MANDATORY CSR IN THE INDIAN CONTEXT:

The theoretical pressures, however, seem to have shaped the Indian proposal from its

inception: on the one hand, the proposal acknowledges the realities of the global

economys liberal economic bent and hence avoids excessive administrative red tape;

on the other, it acknowledges the equally pressing necessity of facilitating development

and avoiding inflammatory wealth disparities. Indias proposal may not be ideal, but it is,

in some sense, an innovation born of economic necessity. As such, the unique nature of

the proposal and the nuances of the political climate that produced it should not be

ignored. The proposal may be the first in a new wave of creative capitalist solutions

proposed by foreign legislatures to solve the problem of growing inequality in the wake

of rapid economic growth.


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Arguments Against Mandating CSR Spending:

These arguments fall into two categories: those that argue that mandatory CSR

spending goes too far, and those that argue that mandatory CSR spending does not go

far enough.

Those, like Friedman, Hannsman, or Macey, who would argue that mandatory CSR

spending goes too far, would insist that the proposal creates market inefficiencies that

may damage the economy in the long run. India, after all, has been doing quite well

under its liberal economic regime. Incredibly, its GDP has been increasing at a rate of

almost eight percent per year.It is one of the fastest-growing economies in the

world.Even the lower classes have benefited from privatization and

globalization.Although millions of Indians remain in poverty, millions more have broken

past the poverty line and are edging closer to a middle-class existence.

Perhaps the most salient argument against mandatory spending is that it might put Indiaat a competitive disadvantage in the global marketplace and might slow or reverse the

countrys near-miraculous growth. Those who already have little might, contrary to the

proposals aims, fall farther away from the prospect of a middle-class lifestyle. Even if

we were to accept Greenfields premise that inequality is a market imperfection

,intervening at this early juncturebefore a country like India has developed sufficient

wealthmight ultimately be counter-productive and may shrink the economy.

Others would contend that the market does require intervention, and quickly. They

would argue, that the proposal is not developed or regulatory enough. Without a

coercive enforcement mechanism, it is unlikely that the law would garner sufficientcompliance. In addition, the law does not specify in sufficient detail the desired target of

CSR spending, so it is unclear exactly what compliance would entail. Since the law is so

vague and does not envision any formal review process, it may barely add to the states

regulatory capacity or legitimacy. In other words, mandatory CSR could remain largely

voluntary. It might be preferable, some would say, to impose a tax so that the

government would be actually obtain funding to reform its infrastructure in a systematic

and democratic way.

Arguments in Favor of Mandating CSR Spending:

The major advantage of mandating CSR spending, as opposed to levying additional

taxes, would be the preservation of the companys autonomy in selecting how its funds

are used. To some extent, the corporation would be free to invest its funds in the

community directly or in a local non-profit or national NGO. Companies could use the

money to further minimize externalities, beyond the requirements of environmental law,

or they could choose to create positive externalities by building schools or providing

workers with more comprehensive benefits. Knowing that each corporation might bring


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two percent of its profits to the community for re-investment, community members might

be far more enthusiastic about the potential of industry coming to their neighborhood.

Re-investing in communities can build reputational legitimacy, trust, and reciprocity from

which companies may ultimately benefit. If community members and other stakeholders

feel that the company is extending its fiduciary duty to encompass their well being, thenthey may feel some positive duty to act in the companys best interest in return.

Greenfield, for instance, asserts that when workers feel that they are being treated with

respect and fairness, they require less monitoring to elicit their best efforts. The

reduction in monitoring costs may ultimately reduce overhead and create a better work

environment. Similarly, local residents who have been treated well by the company

educated in its school or nursed in its hospitalare less likely to organize protests and

create extra costs when and if the company does make a mistake.

Most companies that have CSR programs (around fifty-six percent) spend their money

locally. The vast majority invest in education (eighty-two percent) or health (eighty-onepercent) or on the environment. Schools and hospitals, may simply engender more

recognition, reciprocity, and good-will in communities since they are much more visible.

Additionally, companies may invest their money more efficiently than the government

would, and in ways that will inure to their long-term benefit. Investing in schools

promises to have direct returns for the company. A more educated local workforce is

certainly a boon to any industry, especially the information technology sector, which

continues to grow in India. Given the level of corruption that persists in many developing

countries, corporations may actually produce more impactful public goods than

governments at a lower cost.

The second major argument for mandatory CSR spending is that countries like India are

desperately in need of funding for development. Hampered by a liberal and competitive

global economy, it is difficult for them to impose steep taxes or comprehensive

regulation. It makes good sense to require them to contribute to the public good

primarily by making money, but secondarily by spending some portion of it on

development. Two percent CSR spending would simply bring India in line with CSR

expenditures in the United States,and the money for development is certainly more

desperately needed in India, where at least one-fifth of citizens live in poverty and

where the public health and education systems are famously dysfunctional .

CONCLUSION:

State-driven corporate social responsibility cuts against the thrust of most current CSR

practice and scholarship, which generally focus on voluntary business-driven initiatives

and international agreements. Nevertheless, as the popularity of CSR surges, more and

more national and international players will be seeking to harness the power of


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corporate-funded investment in social welfare projects.As such, proponents of CSR and

of development may want to encourage India to further develop this proposal and

similar initiatives that are responsive to its current circumstances, rather than

automatically rejecting ideas that do not fit neatly into pre-established intellectual

categories.

The proposal to increase social responsibility may bring governments one step closer to

meeting the twin goals of sustaining growth while at the same time addressing troubling

inequality Accordingly, Indias state-based proposal may represent merely the beginning

of a new wave of development in the realm of corporate social responsibility. A product

of unique historical exigencies, the proposal may represent a new type of solution to an

increasingly pressing international problem.

CSR Practices of Tata Group in India

A Tata Company shall be committed to be a good corporate citizen not only incompliance with all relevant laws and regulations but also by actively assisting inthe improvement of the quality of life of the people in the communities in which itoperates with the objective of making them self reliant. Such social responsibilitywould comprises, to initiate and support community initiatives in the field ofcommunity health and family welfare, water management, vocational training,education and literacy and encourage application of modern scientific andmanagerial techniques and expertise. This will be reviewed periodically inconsonance with national and regional priorities. The company would also nottreat these activities as optional ones but would strive to incorporate them asintegral part of its business plan. The company would also encourage

volunteering amongst its employees and help them to work in the communities.Tata companies are encouraged to develop social accounting systems and tocarry out social audit of their operations.

Benchmarking Corporate Social Responsibility

A study on Benchmarking Corporate Social Responsibility Activities, by the GasAuthority of India Limited (GAIL), finds Tata Steel creating a benchmark in corporatesocial responsibility (CSR). The study has been based on Organisation Dynamics. Thepurpose of the study was to identify the best practices in CSR activities available in TataSteel and enable GAIL to undertake the interventions more effectively and in a morefocused manner. Tata Steel is a pioneer in the concept of CSR. It believes that theloyalty and commitment of its employees depends upon the quality of life they are

provided with at work and at home. Consistent with the Group Purpose, Tata Steel hasdeclared in its vision statement that it will constantly strive to improve the quality of lifeof the communities it serves through excellence in all facets of its activities. Thecompany has received a number of awards in recognition of its CSR efforts. The mostrecent testimony to Tata Steels contribution is The Energy & Resources Institute (TERI)

Award conferred on it in recognition of corporate leadership for good corporatecitizenship and sustainable initiatives. Tata Steel is the only Indian company to havepledged to translate the Global Compact principles on human rights, labour and


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environment into practice and was conferred the Global Business Coalition Award forBusiness Excellence in the Community for HIV /AIDS. Over the years, the nature of thecompanys involvement with the community has undergone a change. It has movedaway from charity and dependence to empowerment and partnership. The many facetsof Tata Steels efforts are medical and health services in the rural and semi-urban

areas, sports, womens health and education, water harvesting and tribal development,relief and rehabilitation and income generation, among others.

Tata Corps of Volunteers: Giving out the Best from Tata EmployeesMission Statement

We continue to evolve a common direction to enrich the Tata Way on social -responsibility in order to strengthen out belief in serving the society, through all Tataemployees in all our Companies, by working as volunteers, while also learning from thecommunity. We constantly strive together to improve processes, to stretch capabilities,to share skills, expertise and talents, in order to build strong and self-reliant

communities. We believe this enriches our personalities, improves our attitude towardslife and makes us better citizens; and accordingly, better employees of our respectiveCompanies.

Tata Steels CSR Policy

On unveiling Tata Steels Corporate Social Responsibility Policy, its Managing Director,Mr. B. Muthuraman, said; Tata Steel believes that the primary purpose of a bus iness isto improve the quality of life of people. Tata Steel will volunteer its resources, to theextent it can reasonably afford, to sustain and improve the quality of life of the people ofthe areas in which it operates. Tata Steels commitment to its corporate social

responsibility (CSR) also finds reflection in its adoption of the Corporate CitizenshipIndex, Tata Business Excellence Model and the Tata Index for SustainableDevelopment. Tata Steel spends 5-7 per cent of its profit after tax on several CSRinitiatives. Broadly speaking, the companys CSR initiatives are spread across threecore areas - employee welfare, the environment and the welfare of the community atlarge. Under this broad spectrum, diverse areas are covered. These includeenvironment management, economic development, employee relations, civic amenitiesand community services, healthcare, sports and adventure, relief during naturalcalamities, education, arts and culture and social welfare.

(a) Supports Social Welfare Organisations : To achieve its desired objectives in this

regard, Tata Steel supports various social welfare organisations. They include the TataSteel Rural Development Society, Tribal Cultural Society, Tata Steel Foundation forFamily Initiatives, National Association for the Blind, Shishu Niketan, School of Hope,Centre for Hearing Impaired Children and the Indian Red Cross Society, EastSinghbhum. Tata Steel has hosted 12 Lifeline Expresses in association with the Ministryof Railways, Impact India Foundation and the Government of Jharkhand. It has servedover 50,000 people. Five thousand people have availed of surgical facilities and over1,000 people received aids and appliances. In all, over seven Lakh rural and another


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seven Lakh urban population have been benefited by the CSR activities of Tata Steel.CSR initiatives on the rural front include training in agriculture that is provided tovillagers in the Saraikela Kharsawa area through the village development committees.In collaboration with the Ministry of Non-Conventional Energy and the Confederation ofIndian Industry, focus is laid on renewable energy for rural livelihoods. Integrated

wasteland development programmes have been taken up as also watersheddevelopment programmes for rain-fed areas.

(b) Self-Help Groups (SHGs):

The National Horticulture Mission programme that has been taken up in collaborationwith the Government of Jharkhand has already benefited more than a thousandhouseholds. Over 500 self-help groups are currently operating under various povertyalleviation programmes. Of this, over 200 are engaged in activities of income generationthorough micro enterprises. Womens empowerment programmes through Self-HelpGroups have been extended to 700 villages. Between 2003 and 2006, the maternal andinfant survival project had a coverage area of 42 villages in Gamharia block in Seraikela

Kharsawa even as a replication project was taken up in Rajnagar block. For providingportable water to rural communities 2,600 tube wells have been installed for the benefitof over four Lakh people.

(c.) Healthcare Projects:

Other CSR activities of Tata Steel include facilitation of child education, immunizationand childcare, plantation activities, creation of awareness of AIDS, healthcare projectsand promotion of sporting activities such as football and archery. In its 100th year, theTata Steel Centenary Project has just been announced.

(d) Economic Empowerment:

A programme aimed at economic empowerment through improvised agriculture will betaken up in three backward tribal blocks in Jharkhand, Orissa and Chhattisgarh. Acorpus of Rs 100 crore has been earmarked for the purpose and the programme isexpected to benefit 40,000 tribal living in over 400 villages in these three States.

Low key and Profile

For Tata Steel, discharging its CSR mandate is something that is generally kept

low key. And that is how the companys visionary founder wanted it to be, when

he said that We do not claim to be more unselfish, more generous and more

philanthropic than other people. But we think we started on sound and

straightforward business principles, considering the interests of the shareholder,

our own, and the health and welfare of the employees, the sure foundation of our

prosperity.

Initiatives by the other Indian companies

DLF building in India:


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While DLF continues to create world-class infrastructure throughout India, it has not lost

sight of its responsibilities as a change agent for accelerating the pace of social and

economic transformation across various segments to complement the efforts of the

government.

Swapana Sarthak Informal School

In fact DLF's first social responsibility interventions date back to the time that DLF

was setting up the DLF township in Gurgaon when instead of turning a blind eye to

the local problems, DLF decided to undertake internal development work in the

villages of Nathupur, Chakarpur and Wazirabad by contributing through construction

of internal village roads, additional rooms in the schools and internal village

electrification. At around the same time, DLF initiated its first education initiative by

setting up the Swapana Sarthak informal school for children of the construction

workers. This school manned by trained volunteers conducts classes for children

who are ill equipped to join regular school or those who cannot afford to do so. Allchildren enrolled are provided with free uniforms, mid day meals and learning

material. Starting from merely 10 students, the school today has on roll 220

students. Initially getting the children out of their homes and instilling a sense of

personal hygiene and cleanliness was a challenge and the volunteers had to really

work on them to ensure the present stat

DLF Learning Excellence Centres

Taking the education initiative ahead, DLF partnered with Pratham in May 2007 and set

up DLF Learning Excellence Centres in 25 villages by involving the government

schools, community teachers and introducing innovative teaching learning material. The

main hurdles faced during the project were lack of adequate means of public transport

and resistance from the local community to involve the women. However, these were

overcome through a sustained education and awareness campaign conducted across

the entire village community and by taking the village Panchayats into confidence. This

is an ongoing project likely to benefit 1100 students over a period of one year.

Rural Primary Health Centres

In March 2007, DLF decided to focus on another hitherto neglected but vital area rural

healthcare. It was decided to set up Rural Primary Health Centres in villages to provide

free medical consultancy, health checkups and subsidized medicines to the villagers.

The first Primary Health Centre was set up at Village Shikohpur in August 2007 in


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association with an NGO Deepalaya. It is proposed to set up six such centres in the

present financial year.

Larsen & Toubro (L & T) Limited

Considering that construction industry is the second largest employer in India afteragriculture, employing about 32 million-strong workforce, L&T set out to regulate and

promote Construction Vocational Training (CVT) in India by establishing a Construction

Skills Training Institute (CSTI) on a 5.5 acre land, close to its Construction Division

Headquarters at Manapakkam, Chennai. CSTI imparts, totally free of cost, basic training

in formwork, carpentry, masonry, bar-bending, plumbing and sanitary, scaffolder and

electrical wireman trades to a wide spectrum of the rural poor.

As a result of the good response it received in Chennai, CSTI set up a branch at

Panvel, Mumbai, initially offering training in formwork, carpentry and masonry trades.

The Manapakkam and Panvel facilities together provide training to about 300candidates annually who are inducted after a process of selection, the minimum

qualification being tenth standard. Since inception, these two units have produced about

2,000 skilled workmen in various trades, with about sixty percent of them being

deployed to L&Ts jobsites spread across the country. The success of this training-

initiative demonstrates that adoption of systematic training techniques are bound to

yield efficient and skilled personnel in the shortest possible time, and in the power to

convert the potential of the Rural Youth in Construction and upgrading Rural Economy

in a small way.

Legal Aspects of Business-Corporate Social Responsibility

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