neeati narayan student symbiosis law school, pune...

XVII Annual International Seminar Proceedings; January, 2016

ISBN no. 978-81-923211-8-9 http://www.internationalseminar.in/XVII_AIS/INDEX.HTM Page 214

CORPORATE SOCIAL RESPONSIBILITY: CONTEMPORARY INDIA AND

COMPARATIVE ANALYSIS

Neeati Narayan

Student

Symbiosis Law School, Pune

New Airport Road, Viman Nagar, Pune

INTRODUCTION

The paper will help gauge the actual ramifications of a mere statutory provision and will help

streamline corporate efforts into activities which do not directly profit them as a part of

conventional channels.

Furthermore, it will be an original study into the comparative analysis of CSR and how India

has taken a concrete step in order to promote social activities by the corporate players and

help the stakeholders. It will also support other studies which scrutinize the realities of the

CSR rules.

India witnessed the enactment of a new Companies law regime when the Companies Act of

2013 was signalled a green flag by the legislature. As a part of several developments and

much needed standardization in terms of grey areas and loopholes, corporate social

responsibility (hereinafter referred to as “CSR”) was enshrined as a corporate reality and

duty for the companies governed under this Act.

India is the first country in the world to have mandatory CSR spending (with provisions for

exemption) along with mandatory reporting. It is now statutorily mandatory for all companies

above a certain size to spend 2 percent of their profits towards meeting CSR.

Indian legislature realized the trend shift in terms of the corporate players and as a concrete

step towards tangible globalization based on foreign models, promulgated definite rules

emanating from previously voluntary guidelines.


ISBN no. 978-81-923211-8-9 http://www.internationalseminar.in/XVII_AIS/INDEX.HTM 15

Corporate Governance

The phrase “corporate governance” describes “the framework of rules, relationships, systems

and processes within and by which authority is exercised and controlled within corporations.

It encompasses the mechanisms by which companies, and those in control, are held to

account.1

The OECD principles define corporate governance as involving “a set of relationships

between a company’s management, its board, its shareholders, and other stakeholders.

Corporate governance also provides the structure through which the objectives of the

company are set, and the means of attaining those objectives and monitoring performance are

determined. Good corporate governance should provide proper incentives for the board and

management to pursue objectives that are in the interests of the company and its shareholders

and should facilitate effective monitoring. The presence of an effective corporate governance

system, within an individual company or group and across an economy as a whole, helps to

provide a degree of confidence that is necessary for the proper functioning of a market

economy.”2

Appropriate organizational structures, policies and other controls help promote, but do not

ensure, good corporate governance. Governance lapses can still occur through undesirable

behaviour and corporate values.

Effective corporate governance is not only the result of “hard” structural elements, but also

“soft” behavioural factors driven by dedicated directors and management performing

faithfully their duty of care to the institution.3

In India, corporate governance is imposed by virtue of Clause 49 of Listing Agreement, a

covenant entered into by the listed companies with the stock exchanges. In terms of the

unlisted and private entities, Ministry of Corporate Affairs regulates such aspects relating to

corporate governance norms.

1 Justice Owen in the HIH Royal Commission, The Failure of HIH Insurance Volume 1: A Corporate Collapse

and Its Lessons, Commonwealth of Australia, April 2003 at page xxxiv

2 OECD Principles of Corporate Governance, revised April 2004, originally issued June 1999, available at

www.oecd.org/dataoecd/32/18/31557724.pdf

3 The Principles for Sound Compensation Practices were published by the Financial Stability Forum (FSF) in

April 2009 (the FSF is now the “FSB” –Financial Stability Board)



Clause 49 of the Equity Listing Agreement consists of mandatory as well as non-mandatory

provisions. Those which are absolutely essential for corporate governance can be defined

with precision and which can be enforced without any legislative amendments is classified as

mandatory.

Others, which are either desirable or which may require change of laws are classified as non-

mandatory. The non-mandatory requirements may be implemented at the discretion of the

company.

A few important sub clauses enshrined within Clause 49 of the Listing Agreement include

extensive description of ownership structure (with majority shareholding by shareholders,

directors and promoters), establishment and working norms of Audit and Remuneration

Committees, duties and responsibilities of independent directors, formation of whistleblower

policy and corporate social responsibility. The Listing Agreements of Indian Stock

Exchanges and the reporting requirements therein are deemed to be highly stringent and

regulated in nature as India has gone a step ahead of the best market practices established by

the developed jurisdictions.

BACKGROUND

While there is no particular definition which is globally accepted, CSR is regarded as

voluntary behaviours that contribute to the society welfare. Based on the concept of

sustainable development, corporations should not only stress on their economic and business

outcomes, but also pay attention to their effect on the society and environment. With the

acceleration of global integration, CSR has become a main concern by the public, and is

considered as an essential part of the business strategy4, and yet, it remains to be a disputed

concept.

CSR in the current global form and as a corporate norm has been adopted by corporate bodies

and has gained bigger momentum in the last decade.5

However, it can be defined effectively as the formal and informal ways in which commercial

makes a contribution to refining the governance, social, ethical, labour and environmental

4 Moon, 2002

5 Kiyoteru Tsutsui, CORPORATE SOCIAL RESPONSIBILITY IN A GLOBALIZING WORLD (Cambridge University

Press, 2015)



conditions of the emerging countries in which they operate, while remaining sensitive to

prevailing religious, historical and cultural contexts.6

While theoretical perspectives on corporate social performance or stakeholder management

have been developed for over two decades7, it is only in the last decade that businesses have

begun to exhibit serious evidence of CSR in their strategic management and stakeholder

social reporting.

When we delve into the Indian scenario, it must be noted that the Ministry of Corporate

Affairs recently notified Section 135 and Schedule VII of the Companies Act 2013 as well as

the provisions of the Companies (Corporate Social Responsibility Policy) Rules, 2014 to

come into effect from April 1, 2014. The guidelines that were created by Bhaskar Chatterjee,

Director General and Chief Executive of the Indian Institute of Corporate Affairs (hereinafter

referred to as “IICA”), a Delhi-based government affiliated think tank for corporate

regulation and reform.8

Now, every company, whether a public or a private limited one, which either has (a) a net

worth of Rs 500 crore or (b) a turnover of Rs 1,000 crore or net profit of Rs 5 crore; needs to

spend at least 2% of its average net profit for the immediately preceding three financial years

on corporate social responsibility activities.9

A further condition is that the CSR activities should not be undertaken in the normal course

of business and must be with respect to any of the activities mentioned in Schedule VII of the

2013 Act. Contribution to any political party is not considered to be a CSR activity and only

activities in India would be considered for computing CSR expenditure.

As a part of the notified rules, we find that the activities that can be undertaken by a company

to fulfil its CSR obligations include (a) eradicating hunger, poverty and malnutrition, (b)

promoting preventive healthcare, (c) promoting education and promoting gender equality, (d)

setting up homes for women, orphans and the senior citizens, (e) measures for reducing

inequalities faced by socially and economically backward groups, (f) ensuring environmental

sustainability and ecological balance, (g) animal welfare, (h) protection of national heritage

and art and culture, (i) measures for the benefit of armed forces veterans, war widows and

6 Visser et al., 2007

7 (Carroll, 1979; Freeman, 1984; Donaldson and Preston, 1995; Clarkson, 1995; McWilliams and Siegel, 2001)

8 Fear of Name and Shame Will Push Firms, LIVEMINT EDITORIAL, available on

http://www.livemint.com/Companies/EzwvbztSMQsyJ8Y26iaBrL/Fear-of-name-and-shame-will-push-firms-to-

comply-on-CSR-I.html 9 Section 135 of Companies Act 2013



their dependents, (j) training to promote rural, nationally recognized, Paralympic or Olympic

sports, (k) contribution to the prime minister's national relief fund or any other fund set up by

the Central Government for socio economic development and relief and welfare of SC, ST,

OBCs, minorities and women, (l) contributions or funds provided to technology incubators

located within academic institutions approved by the Central Government and rural

development projects.

What was first only a voluntary guideline, which a handful of companies chose to adhere to,

has now been legally mandated by virtue of Companies Act 2013. Hence, with the

implementation of the new company law from April 1, India has become the only country in

the world with legislated corporate social responsibility (CSR) and a spending threshold of up

to $2.5 billion (Rs.15,000 crore).10

Close to 16,000 Indian companies are expected to spend $2.5 billion (aboutRs.15,000 crore)

on corporate social responsibility (CSR) in the coming years, from the current $0.5 billion,

according to a Boston Consultancy Group report published in February.

Furthermore, CSR calls for a different set of accounting and auditing standards. IICA, along

with the Ministry of Corporate Affairs and the Institute of Chartered Accountants of India are

in the final stages of developing a guidance note on CSR accounting.

Currently, in the profit and loss account or balance sheet of a company, one can never know

where the CSR expense is located. This guidance note will ensure that CSR is a locatable

expense in the balance sheet as once it is locatable, it is auditable. The traditional auditors

can’t audit CSR as they won’t be familiar with the social sector. Hence, auditors will be

assisted in looking at CRS accounting in a new format.11

BEYOND THE LAW- RECENT DEVELOPMENTS

It’s been a little over a year since the Corporate Social Responsibility (CSR) law came into

effect on April 1, 2014. Within such a short period, the entire landscape of CSR in India has

10

India Now Only Country with legislated CSR, BUSINESS STANDARD EDITORIAL, available on

http://www.business-standard.com/article/companies/india-now-only-country-with-legislated-csr-

114040300862_1.html

11 Fear of Name and Shame Will Push Firms, LIVEMINT EDITORIAL, available on

http://www.livemint.com/Companies/EzwvbztSMQsyJ8Y26iaBrL/Fear-of-name-and-shame-will-push-firms-to-

comply-on-CSR-I.html



taken a radical flight. Companies eligible under section 135 of the Companies Act 2013 have

embraced the law and initiated a number of CSR projects across the entire spectrum as

defined within schedule VII of the Act.12

With CSR reports for the first year now out and with dialogue and buzz being generated

around the strategies, approaches and inclinations of various companies, there seems to be a

strong alignment among the companies with each other’s vision and priorities. They see the

value that’s in collaborative efforts and wish to leverage it to create a collective and sustained

impact.

Companies have realised the value in engaging their employees in the conception and

implementation of CSR programmes. With the law allowing for quantification of

volunteering time, companies now also actively seek modules of CSR that have employee

involvement as a core feature.

COMPARATIVE ANALYSIS

In 2007, the Malaysian government passed a regulation to mandate all publicly listed

companies to publish their CSR initiatives in their annual reports on a “comply or explain”

basis. Accordingly, all public listed companies (PLCs) in Malaysia have to either publish

CSR information or they need to explain why they should be exempted.4 In another example,

in 2009 Denmark mandated CSR reporting, asking all state-owned companies and companies

with total assets of more than €19 million, revenues more than €38 million and more than 250

employees, to report their social initiatives in annual financial reports. 13

To enable transparency from businesses on the environment, social and governance front,

France passed a law called Grenelle II14

, which mandates integrated sustainability and

financial reporting for all companies listed on the French stock exchanges, including

subsidiaries of foreign companies located in France and unlisted companies with sales

revenue of more than €400 million and more than 2,000 employees.

12

Divya Nawale & Prerana Manvi, The Changing Landscape of CSR in India, FORBES INDIA, available at

http://forbesindia.com/blog/the-good-company/the-changing-landscape-of-csr-in-india 13

Current Corporate Social Responsibility Disclosure Efforts by National Governments and Stock Exchanges,

THE HAUSER CENTER available at http://hausercenter.org/iri/wp-content/uploads/2011/08/CSR-Disclosures-

Update-6-27-13.pdf 14

How France’s new sustainaility reporting law impacts US companies, ERNST & YOUNG, available at

http://www.ey.com/US/en/Services/Specialty-Services/Climate-Change-and-Sustainability-Services/Value-of-

sustainability-reporting



Although some CSR standards are mandatory, there are others, which comprise of both,

mandatory and voluntary standards. For instance, in 2006 the British Companies Act

mandated all companies listed in the UK to include information about their CSR activities in

their annual reports; however, a full length CSR reporting was made voluntary.15

A corporate responsibility index challenges and supports large organizations to integrate

responsible business practices. Emerging markets such as Brazil, China and South Africa

have become forerunners in CSR reporting in the developing world in terms of their

involvement in CSR-related activities in order to promote the listed companies’ credibility,

transparency and endurance.

In USA, the Department of State is pro-actively involved in the regulatory aspects of CSR. he

Corporate Social Responsibility (CSR) team in the Bureau of Economic and Business Affairs

leads the Department’s engagement with U.S. businesses in the promotion of responsible and

ethical business practices.16

US companies have had the luxury of defining and interpreting their own view of responsible

business within the context of their own company. Subsequently they have been able to

measure and promote activities with greater freedom than their international counterparts.

RECOMMENDATIONS

Disclosures

The following aspects should be effectively disclosed in a Corporate Social Responsibility

Reports, as established through best market practices across jurisdictions:

1. Corporate Governance and Financial Performance

2. Policy, practices, and proportion of senior management hired from the local community at

significant locations of operations

3. Policy, practices, and proportion of spending on locally-based suppliers

15

Matthew Maguire, The future of Corporate Social Responsibility Reporting, BOSTON UNIVERSITY WEBSITE,

The Frederick S. Pardee Center for the Study of Longer Range Future, available at

http://www.bu.edu/pardee/files/2011/01/PardeeIIB-019-Jan-2011.pdf, dated 19 January 2011 16

DEPARTMENT OF STATE IN UNITED STATES OF AMERICA, available at http://www.state.gov/e/eb/eppd/csr/



4. Development and impact of infrastructure investments and services provided primarily for

public benefit

5. Risks and opportunities for the organization's activities due to climate change.

6. Business and management risk analysis

7. Total workforce by employment type, employment contract, and region

8. Labor Occupational health and safety

9. Diversity and equal opportunity

10. Security practices & Indigenous right

11. Anti-competitive behaviour

Environment Disclosures

In the US and Canadian jurisdictions, the following environment topics are given a high

preference in terms of disclosures by the corporate bodies:

1. Hazardous Substance Management

2. Raw Material Use

3. Energy Use

4. Total water withdrawal and discharge

5. Greenhouse Gas Emission and reduction target

6. NOx, SOx,and other significant air emissions by type and weight

7. Description of significant impacts of activities, products, and services on biodiversity

The following aspects may find place in the CSR reports of Indian corporate bodies within

the environmental disclosures, a section which should be made mandatory:

1. Total weight of waste by type and disposal method

2. Initiatives to mitigate environmental impacts of products and services



3. Percentage of products sold and their packaging materials that are reclaimed by category

4. Monetary value of significant fines and total number of non-monetary sanctions for non-

compliance with environmental laws and regulations

The other practical methods that a company can utilise to implement their CSR budgets into

effective and helpful spending include conducting walkathons for raising funds. They may

also consider funding research experiments attempting to study and cure life threatening

diseases. In the educational sector, the companies may consider delivering free lectures and

organising technical workshops for further placements in the organisation. The CSR spending

can also provide financial backing to college fests. For a more socialistic approach, the

companies may indulge in supporting institutions for helping people with special needs.

An organised manner of social spending should follow a specific plan of action under which

the company may select one particular sector and assist in uplifting their social status. For

example, they may choose to assist the agricultural sector by supporting the financial needs

of the farmers and sponsoring effective farming techniques.

Environment is a pertinent topic of debate and hence, the companies may provide financial

support to public wildlife sanctuaries in need of such funds and may focus on animal saving

projects.

One other initiative may include something as basic as saving the food left over from big

parties and giving it to the homeless and needy. This mechanism can put in place with basic

agreements entered into between hotel chains.

Naming and Shaming policy in public domain

CSR has now become a project addressed by the board, and it has to be passed by a CSR

committee. It is no longer based on the whims of a promoter and there is a professional

attitude to it. It has come from a back room to a board room. And most of all, the information

will be available in the public domain.

Internet and social media have revolutionised the way information is now accessed,

processed and shared – everything with the convenience of a click or a swipe. Increasing

number of stakeholders are now more informed and engaged about organisational impacts

and performance.



This makes it important for companies to proactively reach out to stakeholders with

information that they want to know rather than the information that the company wants to

share. Stakeholder engagement is an important tool to build stakeholder trust and continually

assess their needs. 17

It is not mandatory; a company does not need to follow through with the spending. However,

the companies will need to provide an explanation of why they did not do it in public domain.

Their board members, shareholders, customers will be able to see the excuse being made by

the company for not making their 2% spend.

According to Cambridge Dictionary18

, to name and shame is to "publicly say that a person,

group or business has done something wrong" and it is used to discourage certain activities.

Presuming that in the first year the companies have some kind of explanation, in the

subsequent years the board of directors is not going to allow the corporate body to go on

explaining why it did not meet the 2% threshold. Furthermore, companies will also be driven

by a sense of competition. Comply or explain is a principle used by a lot of legislations in the

world. The strategy will help build confidence among companies by having a non-

confrontational approach. In 12-24 months, things will be executed differently on the ground

level, especially from the large number of companies that now come under the Act.

ANALYSIS OF DATA COLLECTED

A survey instrument comprising queries on laymen’s current perception and knowledge of

CSR was extensively circulated between students and professionals. This activity was an

attempt to gauge the reactions and ideologies with respect to CSR at the ground level.

Statistical compilation in the forms of pie-charts and graphs has been created for a better

understanding of the data collected.

The accuracy of the findings and the inferences therein, is dependent on the accuracy of the

data collected from survey takers and the provisions of CSR in other jurisdictions.

Methodology – Survey (Annexure I)

17

India Corporate Responsibility Reporting Survey of 2013, KPMG INDIA, available at

https://www.kpmg.com/IN/en/IssuesAndInsights/ArticlesPublications/Documents/India-Corporate-

Responsibility-Reporting-Survey-2013.pdf 18

CAMBRIDGE DICTIONARY available at http://dictionary.cambridge.org/dictionary/english/name-and-

shame?a=british



Using – Questionnaire

Population – 40

I. Distribution in age group –

II. Is it the duty of corporate bodies to indulge in social activity? -

79%

16%

5%

16-24 25-49 50-85

77%

10%

13%

Yes No Don't Know

The survey is dominated by the

age-group 16-24 i.e. the youth

group.

Most survey participants

believed that a corporate

should give back to the society

by virtue of such social

activities apart from profit

making ventures.



III. Do you have any knowledge of what is CSR –

IV. Are companies in India following any CSR norms–

85%

15%

Yes No

37%

48%

15%

Yes

No

Don't know

Mostly the survey takers were

aware of the basic concept of

this business term if not the

intricacies.

Mostly people believed that

only the biggest names were

following the most basic norms

of CSR rules and other

companies were not complying.



V. Is CSR regime a dead letter of law (Effectiveness of 2013 Act) –

VI. Is the naming and shaming policy an effective measure?–

65%

25%

10%

Yes

No

Don't Know

32%

23%

45%

Yes

No

No idea

People mostly believed that even with the new laws, no

concrete effect has been visualised on the actual corporate

plane.

Most survey takers had no idea about this

particular trend and the ones who knew about it

mostly agreed with the measures.



VII. What should companies focus on while implementing CSR spending?

CONCLUSION

The pre-survey indicates that there exists a large gap between the legislative provisions and

tangible follow up of the same. Firstly, people are not aware of the actual provisions

enshrined within a fully fledged act. Furthermore, the general public perceives CSR as a dead

letter of law with the companies utilizing all probably loopholes to avoid any extra

expenditure which does not support their ruthless profit making operations.

To conclude, a strict implementation mechanism should be put into place to ensure that the

spending of the company towards social initiatives is not just a dead dictate by law, but is a

practical directive. The naming and shaming policy is an effective measure using a non

confrontational method and yet, meeting the objective of putting information in public

domain.

Most of the people believed that CSR initiatives should relate to creation of more employment

opportunities through different means and companies should think of creative methods of

serving more than 1 purpose by virtue of their initiatives.

0

2

4

6

8

10

12

14

16

Education Health WomenEmpowerment

Environment Effect Employment



REFERENCES

1. Justice Owen in the HIH Royal Commission, The Failure of HIH Insurance Volume

1: A Corporate Collapse and Its Lessons, Commonwealth of Australia, April 2003 at

page xxxiv

2. OECD Principles of Corporate Governance, revised April 2004, originally issued June

1999, available at www.oecd.org/dataoecd/32/18/31557724.pdf

3. The Principles for Sound Compensation Practices were published by the Financial

Stability Forum (FSF) in April 2009 (the FSF is now the “FSB” –Financial Stability

Board)

4. Moon, 2002

5. Kiyoteru Tsutsui, CORPORATE SOCIAL RESPONSIBILITY IN A GLOBALIZING WORLD

(Cambridge University Press, 2015)

6. Visser et al., 2007

7. (Carroll, 1979; Freeman, 1984; Donaldson and Preston, 1995; Clarkson, 1995;

McWilliams and Siegel, 2001)

8. Fear of Name and Shame Will Push Firms, LIVEMINT EDITORIAL, available on

http://www.livemint.com/Companies/EzwvbztSMQsyJ8Y26iaBrL/Fear-of-name-and-

shame-will-push-firms-to-comply-on-CSR-I.html

9. Section 135 of Companies Act 2013

10. India Now Only Country with legislated CSR, BUSINESS STANDARD EDITORIAL,

available on http://www.business-standard.com/article/companies/india-now-only-

country-with-legislated-csr-114040300862_1.html

11. Fear of Name and Shame Will Push Firms, LIVEMINT EDITORIAL, available on

http://www.livemint.com/Companies/EzwvbztSMQsyJ8Y26iaBrL/Fear-of-name-and-

shame-will-push-firms-to-comply-on-CSR-I.html

12. Divya Nawale & Prerana Manvi, The Changing Landscape of CSR in India, FORBES

INDIA, available at http://forbesindia.com/blog/the-good-company/the-changing-

landscape-of-csr-in-india

13. Current Corporate Social Responsibility Disclosure Efforts by National Governments

and Stock Exchanges, THE HAUSER CENTER available at



http://hausercenter.org/iri/wp-content/uploads/2011/08/CSR-Disclosures-Update-6-

27-13.pdf

14. How France’s new sustainaility reporting law impacts US companies, ERNST &

YOUNG, available at http://www.ey.com/US/en/Services/Specialty-Services/Climate-

Change-and-Sustainability-Services/Value-of-sustainability-reporting

15. Matthew Maguire, The future of Corporate Social Responsibility Reporting, BOSTON

UNIVERSITY WEBSITE, The Frederick S. Pardee Center for the Study of Longer Range

Future, available at http://www.bu.edu/pardee/files/2011/01/PardeeIIB-019-Jan-

2011.pdf, dated 19 January 2011

16. DEPARTMENT OF STATE IN UNITED STATES OF AMERICA, available at

http://www.state.gov/e/eb/eppd/csr/

17. India Corporate Responsibility Reporting Survey of 2013, KPMG INDIA, available at

https://www.kpmg.com/IN/en/IssuesAndInsights/ArticlesPublications/Documents/Ind

ia-Corporate-Responsibility-Reporting-Survey-2013.pdf

18. CAMBRIDGE DICTIONARY available at

http://dictionary.cambridge.org/dictionary/english/name-and-shame?a=british



ANNEXURE- I

A BRIEF SURVEY ON CORPORATE SOCIAL RESPONSIBILITY IN INDIA

Personal Information

Name:

Age:

Sex:

Profession/Designation:

Email:

Mobile Phone:

And thank you in advance for your time and attention!

Q1) Is it the duty of corporate bodies to indulge in social activity?

Yes No Don’t Know

Q2) Do you know what CSR stands for?

Yes No

Q3) Are companies in India following any CSR norms ?

Yes No Don’t Know



Q4) Is CSR regime a dead letter of law? (Effectiveness of 2013 Act)

Yes No Don’t Know

Q5) Is naming and shaming policy and effective measure?

Yes No Don’t Know

Q6) In your opinion what should companies focus on while implementing CSR

spending?

Education Health Women

Empowerment

Environment Employment

+Ve ( )

-Ve ( )

+Ve ( )

-Ve ( )

+Ve ( )

-Ve ( )

+Ve ( )

-Ve ( )

+Ve ( )

-Ve ( )