“Responsible business is good business”

BY:- ROCKY KUMAR

INTRODUCTION.

One of the human kinds greatest challenge is to ensure sustainable, just andbalanced development. The need of the current and future generations cannot be met unless there is respect for natural system and following standardsof law & sustainability for protecting social and environmental values. Inthis context, corporations, being part of the society, it is increasinglyrecognized that the role of business sector is critical. Thus, corporationsengaged in there profit seeking practices, around the world are strugglingwith a new role- CSR.

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WHAT IS CSR?

Corporate Social Responsibility is a way through which companiesintegrate legal , ethical, moral, social and environmental concerns in theirbusiness operations and interaction with stakeholders :- workforce, society,competitors, business associates, government, investors, share holders andother group.

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DEFINITIONS.

Philip Kotler and Nancy lee (2005) – “a commitment to improve communitywell being through discretionary business practices and contributions ofcorporate resources”.

Mallen baker - “ a way companies manage the business process to producean overall positive impact on society”.

World business council for sustainable development- “ CSR is thecontinuing commitment by business to behave ethically and contribute toeconomic development while improving the quality of life of the workforceand their families as well as of the local community and society at large”.

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CSR- A MISUNDERSTOOD CONCEPT.

In absence of a universally accepted definitions of CSR, there are somemyths that surround the concept :

Myth 1. A Charity

Myth 2. Cost Enhancer.

Myth 3. Just Public Relation.

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OBJECTIVE & PRINCIPLES.

To maximize the company’s overall impact on the society and stakeholders.

There are three basic principles of csr: sustainability, accountability,transparency.

The effect is that the csr clause will only apply to some of the over 800,000companies in india, including over 8,000 publicly listed companies andmultinational companies. The accounting firm ernst & young estimates thatthe law would cover over 2,500 companies in india and generate over U.S $2billion of CSR spending in local communities.

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REASONS.

SOCIAL OBLIGATION – Corporations being part of the society, takeresource from it, grows and develop on it. Secondly, the activities of theindustries and companies also result in environment degradation. Thirdly,the expectations of the citizens, consumers, public authorities etc compelsthe company for CSR. Fourthly, business can’t operate on unsuccessfulsociety. Thus, it’s the social and moral duty of them to cater to the needs ofthe society.

LEGAL OBLIGATION – To align with the provision of the companiesbill,2012 and SEBI guidelines (cl. 16)

BUSINESS PLAN – It builds the goodwill, reputation of the firm, defendsattacks of social groups, NGOs etc and increases business competitiveness.It works for long term sustainability of the firm and also ‘connect the dots’.

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REASONS.

OTHER FACTORS – It includes factors like : sustainable development,expectations of the public, globalization, ethics, community, communication,finance etc. are the other determining factors.

WATCH- DOG ORGANIZATIONS – It includes organizations such asNGOs and other governmental and social bodies.

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Provisions of law.

As per new companies bill 2012, cl 135 , 2% of the average profits of lastthree(3) years of the companies reporting Rs. 5crore or more profits in lastthree years should go for corporate social responsibility.

Specifically, the CSR clause applies to any company, during any fiscal year,with (i) a net worth of rupees 500 crore (about us $90 million) or more; (ii) aturnover of rupees 1,000 crore (about us $ 180 million) or more; or (iii) anet profit of rupees 5 crore (about us $900,000) or more.

If companies do not comply to the provisions, they have to give explanationsand penalties is also levied on them. Fine for non compliance is not less than50,000 Rs. (About US $900) and up to 25 lacs(about US $46,000). Further,officers who default on the reporting provision could be subject to up tothree years in prison and/or fines of not less than 50,000 rupees(us $900) andas high as 5 lacs (up to $9,200).

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Provisions of law.

There is freedom to choose areas of CSR. The law also requires to formCSR committee within the board of directors that will devise, recommendand monitor CSR activities and amount spent on such activities , to the restof the board. The CSR committee must consist of three or more directors, atleast one of which must be an independent director- cl 149(6).

Un, ilo, oecd also prescribes guidelines which the company should followfor sustainability.

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AREAS.

Human rights

Employment

Education

Health & nutrition

Anti- corruption measures

Gender balance and empowering women.

Industrial supplier relation

Anti- bribery

Customer satisfaction

Cultural activities

Eco efficiency

Environment management (eco efficiency)

Labour, employees and stakeholders management

Hunger and poverty.

Reducing child morality and improving maternal health.

Combating hiv aids, malaria and other diseases.

Contribution to pmnrf or any fund set up by the central or state govt. For socio economic development and reliefs & funds for the welfare of SC/ ST, OBC, minorities, woman etc.

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BENEFITS OR IMPORTANCE OF CSR.

Operational efficiency, cost saving and beneficial in long run.

Builds goodwill, reputation, positive media profile.

A catalyst for responsible consumption and improves relationswith regulators.

Compliance with law protects it from any legal actions thereof.

Attracts consumers and builds relations.

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STATISTICS.

Many companies now, report their annual financial statement along with CSR reports. Real companies are reporting real benefits from CSR activities . here are some examples:

1. The indian TATA group is engaged in a wide variety of activities directed at helping community development. The company web site lists ex. Of the positive media this has generated.

2. There are now high profile lists of the most responsible companies. The innovest firm “ ex.100 most sustainable companies in the world” list, for ex. Has been released annually at the world economic forum since 2005.

3. The 2007 edelman trust barometer suggested that there had been an improvement in public perception of business. This may have been due to the increased attention businesses are giving to CSR issues.

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STATISTICS.

4. Standard chartered bank’s “seeing is believing” campaign tohelp cataract sufferers has resulted in a number of awards forthe company.

Financial market opinion.

“ There is a growing body of evidence that companies whichmanage environmental, social and governance risks mosteffectively tend to deliver better risk adjusted financialperformance than their industry peers.” – Jean frijns, chiefinvestment officer. Abp, 2004.

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