Date : 12 September 2013

Obligatory CSR: Making companies responsible for Government's functions.



Recently new Companies Bill 2013 is passed in the parliament replacing age old Companies law. This is a good move by the government. But one particular provision of making spending on CSR activities compulsory to companies is very unjust and absurd in its very nature. By implementing CSR spending the government is gradually shifting its core responsibilities over to companies. In alternate way it implies that it is parting away from its duties and forcing companies to focus on non-core business activities. Why supposedly shift social responsibility on companies because they are already carrying out social responsibility by giving jobs to people, in which government has reasonably failed, the presence of large number of unemployed youth corroborates this argument. The companies are doing this duty very well in spite of paying requisite taxes and adhering strictly to numerous regulations and compliances imposed by government. This recent compulsion on CSR spending is only an new addition to already existing huge list of compliances. And the treatment the companies get from each government official right from approval authorities to tax officials is so harsh and inconsiderate. As if they are committing some offence by doing business.

While carrying out government's responsibility are companies going to receive considerate treatment by all government authorities of which they truly deserve. Company has to spend considerable amount to consultants in order to avoid any non compliances because they feel that this spending is better than paying hefty fines arising from non compliances. Are tax officials going to stop suspicious view towards companies? This new rule is total cowardness and a clear depiction of self inefficiency on part of government in formulating proper policies and there implementation framework. A subtle question here arises is - why should government collect taxes if carrying out social work is company's responsibility. Then what is government's responsibility?. Excluding defense, in what other way the payment of taxes helping companies. Take for e.g. roads, nearly every single road in this country is filled with toll booths. Consider education, why no one form middle class and upper middle class wants to educate there children from municipality schools. Is government not responsible for giving conducive business environment to companies. I doubt this because of the recent harsh policies of the government - retrospective tax amendments, high pricing of communication bandwidths and 3G licenses , hoarding of coal reserves to itself and many more. The new rule will only add to the existing agonies of companies.

I suspect if government is hiding its own lethargy and laziness . It is hypocritical to make companies responsible towards society covering the fact - what responsibility is government carrying out towards society. Why children are suffering from malnourishment in spite of bumper harvest . Why are we importing coal and iron ore in spite of huge coal and iron ore reserves. Why are youth unemployed in spite of securing degrees and diplomas? Take for e.g. passing of powerful and efficient lokpal bill in parliament. It itself don't want to be answerable but want others to be answerable towards there secondary functions.

The purpose of this article is not to demotivate CSR spending of companies neither to stop it. But only raise genuine concern of companies that CSR spending should not be made compulsory. Social responsibility is a collective responsibility of all citizens and not of companies alone. Already many companies are spending chunk of there profits towards it. Why to enforce such unrequired rules, creating a negative image in investor community. Such policing only depicts government's harsh intentions. Why to clutter the minds of entrepreneur with excessive rules. It only creates one more harsh regulation on companies.

My point is if government wants reason from companies if they fail to comply the minimum CSR spending, is government ready to give reasons for its own failures in a clear and understandable way. Because by the way CSR is company's secondary responsibility but social responsibility is government's primary and most core function. Government is only boasting of self claimed achievements of inclusive growth with its own unrealistic poverty reduction figures. Further some ministers are justifying these claims by saying a individual can survive a day in 32 Rs only. A harsh joke on poverty. And if UPA or any party in that matter fails in two successive periods of 5 years with what face it is again going among voters to ask for another chance in each subsequent elections. Rather than pointing out silly mistakes of companies, the government should focus on self introspection and be more efficient in its own functioning.

The need for Food Security Bill (FSB) is itself a shame on government. In spite of two consecutive terms it has failed to keep its promises and it still feels that poor are unable to feed themselves and so it is necessary to feed them. Thus contradicting its own claims of achievements. Isn't this an grave failure of social responsibility that it failed to reduce poverty. How many more years it will take to eradicate poverty. If social spending is made compulsory to companies now , tomorrow government will make it compulsory to individuals and further it will make compulsory to entire population but itself. What is the use of electing a government? If at all CSR spending is a plausible compulsion then why give it name as social responsibility alone give the name Corporate National Responsibility. Give entire responsibility of education, roads, electricity, etc. to companies and close all the ministries related to it. Because any way they will be reduced to watchdogs. And finally make defense of entire nation companies responsibility. Then why to collect taxes if companies are themselves spending in these matters. Question arises is government's function only to make laws and leave its implementation on companies. Slowly a need will arise to give such names as Corporate Education Responsibility, Corporate Health Responsibility, Corporate Police Responsibility, etc. for specialized spending by companies. Honorable ministers, please consider this plea and avoid creating such absurd and unrealistic rules and regulations on companies.

Do we elect government for diverging of their responsibilities to other entities or for accepting the responsibilities themselves?

Sujeet Patil

Pros, Cons and scope for improvement of Corporate Social Responsibility

Pros, Cons and scope for improvement of Corporate Social Responsibility CSR clause- As per the Companies Act, 2012
The recently passed Companies Bill, 2012 has a separate clause on CSR which makes it mandatory for certain specific companies to spend 2% of the average net profit made in preceding 3 financial years on Corporate Social Responsibility. The 2% CSR provision will have ripple effects in the economy of India.
Following are its pros:

* Mahatma Gandhi once said, Industry should consider themselves as trustee and servants of the poor. CSR, as a concept, upholds Gandhijis views. (Pro-Gandhian)

* CSR is very popular in countries like Japan, South Korea and growing economies like Brazil where companies are actively involved in various activities to demonstrate themselves as socially responsible corporate citizens. (widely accepted)

* India became the first country to make CSR mandatory, which would help shaping communities and improving the national economy. (India- first country)

* Huge scope for the corporate sector to contribute to employment, health, education and poverty. (Scope for corporate)

* Enhances the possibility of cooperation between business, society and government. (cooperation)

* Enhances the competitiveness of the company, while simultaneously advancing economic and social well-being in the communities, thereby increasing the long term sustainability of the company. (competitiveness)

* If a company does not conduct its own CSR it can give the required amount to the governments socio-economic welfare programs such as Prime Ministers National Relief Fund. (diversion of funds) (imp. For MCQ)

* With the 2% CSR provision there will be an immediate doubling of social program money in India i.e. additional $5 billion poured into social welfare sector.(more money)

* Via 2% CSR there will be more human capital developed (education, healthcare, training, etc) in the economy which will have long term ripple effect on Indian economy to accelerate production of goods and services.(human capital)

* Moreover, through CSR spending in energy, environment and R&D other factors of production will be more efficiently utilized. This will in turn boost capital generation and thereby boost the economy in the long run. (capital generation)

* Occasionally the government re-distributes resources, mostly taxed money, very inefficiently. Plus the government agencies are often restrained by regulations and requirements in their attempt to implement social programs. Businesses do not have to face such restrains. They can spend money and minimize externalities that come with undertaking social good. (less restrains)



Following are its cons:

* No other country in the world has made CSR mandatory.

* Mandatory CSR increases the inefficiency which can be equivalent to government taxing its investors which deprives them of mobilizing the economy. (inefficiency)

* Might create reluctance within the international business community about investing in India. (reluctance)

* One of the basic aspects of corporate commerce this clause tends to ignore is the interests of the shareholders of a company. The shareholders have invested their money in a company and expect a return. It would be irresponsible for the company to indulge in activities that diminish shareholder value over the long run. And if the company is successful it is obviously generating enough tax revenues to address the governments social spending needs. And, assuming shareholders get a return from their investment, it is their call to spend their individual earnings the way they like it to be. (shareholders interests)

* There is already a series of cascading taxes charged on companies, in addition to the expenditure incurred on buying materials from suppliers, employee benefits and so on, hence an extra mandatory expenditure would become burdensome. (cascading taxes)

* Also the percentage of expenditure fixed i.e. 2% is high; ideally it should have been around 1% of profit after tax. (high percentage)

* Any company operating in a market is bound to have constant interactions with the society around it. It might be with the people it employs, lenders who lend it, exchequer which collects taxes. Therefore, if a company is fair in its dealings there is hardly any need for imposing CSR on it. (socio-economic interactions)

* The last couple of years have seen quite a few episodes of industrial unrest erupt at manufacturing facilities managed by leading companies. These have brought to light several murky practices employed by some manufacturing companies to keep their production lines chugging, even as they cannot manage the costs. Unfair practices such as keeping legitimate workers off the payroll, paying them salaries that blatantly violate minimum wage rules and using loopholes that deny them of basic legal rights. If a company acquits itself badly on the above counts, it doesnt really help the social cause if it then goes on to build schools or sanitary facilities in the rural hinterland. (unethical practices)

* Another set of problems that plague SMEs is inordinate delays in payments of dues for supply of goods or services, wafer-thin margins and one-sided, contracts that barely allow survival. Such problems surface mainly when smaller industries have to deal with more powerful corporate buyers. This is the chief reason why listed companies were earlier mandated to make explicit disclosures, in their annual reports of large outstanding dues to SMEs. These disclosures have now been waived. This can be counted as a black mark against social responsibility. (problems of SMEs)

* Take evasion is another bottle-neck faced by the government in increasing its tax-GDP ratio. It has become quite commonplace in recent years to see large firms lead their lenders on a merry dance to recover their dues. Taking recourse to innovative structures that help escape ones legitimate share of taxes has become a daily affair now. Therefore, there doesnt seem much substance in cheating the exchequer out of a 30% share of profits by evading taxes and then shelling out a paltry 2% as CSR. (tax-evasion)

* Finally the problems of the poor and needy in our country are real and need addressing. The government is supposed to address these problems. The CSR tax is a diversion. The government would be better served by improving its execution capabilities. (govt. shirking responsibility)

* A companys failure to conduct CSR will lead to its penalization. (penalty)

Scope for improvement:

* The main point on which the law makers should focus before making an effort to implement the CSR clause is the willingness of the corporate world to integrate the same into its business strategy. CSR makes sense only when the business requires it and not the government. For example a business that depletes resources such as water, can and should put in place initiatives that replenish these resources to restore environmental balance. (willingness)

* There should be an arrangement made by which the shareholders are aware of the fact that the company is going to spend a specific part of its profits in CSR, as ultimately it is the shareholders who contribute significantly to the corpus. (shareholders interests)

* It is also suggested to actively consider a system of CSR credits that evaluates a companys social responsibility in its entirety. While awarding credits to companies that do deploy 2% of their profits on CSR, it should also incorporate negative marks for being in an undesirable business or sharp practices in dealing with suppliers, employees and the exchequer. (CSR credits)

* Establishing a disclosure framework for all this may not be too difficult, as the top listed companies are already required to address many of these issues in the new Business Responsibility Report. A report card on these lines may prompt the leading corporate to take their social responsibilities more seriously. It may also help silence the cynics who ask if a profit-oriented enterprise can really do well, if it expends it profits on doing good. (Business Responsibility Report)
To a layman CSR looks like an innovative solution to remove certain inefficiencies set in governments service delivery system, but a lot depends upon how the corporate sector perceives it and the amount of willingness it shows to perform the duties as mandated to it. 2% might look very petty to a huge multinational company like Reliance or Walmart, but the kind of impact that it can create on the society is immense. Many large corporates across the country are conducting laudable CSR programs that have far-reaching benefits. Very few of these corporates actually invest into impact assessment even though an assessment could help them plug gaps and move ahead. Impact assessment could actually be the collateral benefit from the 2% CSR provision that corporate India was reluctant about.
by Lloyd DSouza




References:
http://independentskies.com/the-2-impact-of-indias-companies-bill-creative-capitalism-for-development/
The Hindu Business Line: Dated 12th August, 14th September and 16th September 2013

Corporate Sector and Environmental protection

In the era of globalization repid industrialization is taking place creating an increasing pressure on environment. Rapid industrialization and faster growth rate are required of a developing country in fact Corporate Sector is the main consumer of the resources provided by environment. At the same time they are considered as one of the main polluter. The pollution causes impairment of environment. Through environment protection this impairment can be fulfilled.
The programme concern for environment essentially mean to protect and conserve it partially through developmental programmes and in most case for the benefit of local population. There is bit effort to modify the development process to bring it in greater harmony with (i) the needs of people and (ii) the need to maintain an ecological balance, while increasing the productivity of our land , water and forest resources.

Corporate Sector and Developing Country:
Corporate Sector is te necessity of a developing country and for the growth of the nation. Community needs Corporate Sectorfor their livelihood support: the Corporate equally needs the community for their operatio. The concept and movement of Corporate Social Responsibilty (CSR) for disaster and environmental management has been growing rapidly in the world, particularly among those corporation located in disaster prone and biodiverse regions.

Affect of corporate Sector on Environment:
Unplanned industrialization release huge amount of effluents, hazardous wastes and emission of chemical from the industrial units in environment are the main cause of environmental damage. These are:-

* Ozone hole

* Global Warming

* Acid Rain

* Water Pollution

Annual Reports of Corporate Sector in concern of Environmental Protection:
Annual report shows that Corporate has launched a number of Environmental Management Programme in different ways to protect the environment from pollution which bhave been clearly disclosed in their Annual Reports. The corporate spend huge amount of expenditure for prevention of pollution an dprotection of environment.
Lack of Annual Report:
In their annual report,it was not found its financial statement to segregate the expenditure incurred by the various environmental activities under the head Expenditure Cost & Expenditure.

Ways of Environmental Protection:
with the help of following ways we can protect our environment:-

* Fulfill the Lack from Corporate Social Responsibility of (CSR) activities:
CSR should fulfill the lacks of employee education. Environmental considerat ion, capacity building development of infrastructure, and trust building.
The acivities that are practiced as CSR are primarily of a short time should be response, rather than proactive( therefore, it may not have a lasting effect on the community resulting in short-lived impacts of the activities). With propernprecautionary involvement of activities in CSR , communities will be more resilient and better prepared for the future disaster and environmental hazard.

* Laws for Environmental Protection:
Most of the companies in India are not aware of environmental issues, the Government of India should introduce and enact a new place of company law for disclosing the environmental information in the Annual Report Mandatory. At the same Award for the best presentation for disclosing environmental information in the Annual accounts may also be introduced by the confederation of Indian Industries.
The Organization of the Economic Corporation and Development (OECD) agreed to base their Environment policies on Polluter Pays Principle and it was recommended as an essentially economic efficiency measure to internalize environment cost.
Polluter Pays principle (PPP) , which was originally considered as an economic administrative measure to restrain and control the pollution problem has recently been recognized as combat environmental pollution and associated problems.

* Environmental Management:
With the help of Environmental Management we can protect environment. The toolof Environmental Management Accounting and Reporting. These tools help in the treatment of Environmental Issues.

* Biotechnology:
It involves specific applications of Biotechnology to the management of environment and related socio-economic and development issues keeping in view the concept of sustainable development.
Conclusion:
Corporate Sector , which is more responsible for Environmental Degradation ,sould be more eco-friendly. The corporate should disclose both the positive and negative impact of their activities on environment. The corporate should take a proper environmental policy and set aside a part of their fundsfor environmental promotion. Corporate sector should abide by various laws and regulation to prevent and control the pollution of environment. Now there is an urgent need to develop a comprehensive guideline for environmental accounting and suitable format for environmental reporting as a device of environmental protection. There is the need of holistic understanding of the relationship between the environmental and the development process taking place in the country. Development at the cost of environment can take place only upto a point. Developmet without a concern for the environment can be a short term development, which in the long term can be anti-development that can go at the cost of human sufferingand oppression. Each Corporate citizen should bear the moral responsibility toward the protection of the environment from damage and pollution.

Reference: THE HINDU news paper,environmental science books, companies reports i.e. coca-cola.

NAME:Priya Singh