Ratified by that organisation which lends credibility
to any pronouncement, the United Nations, corporate social responsibility (CSR)
done the right way should lead to a triple windfall: increased profits, environment
protection, and an equitable society. Leaving aside the compatibility issues of
an inherently capitalistic entity (the modern corporation) with sustainability
and social justice, the irony is that ‘effective CSR’ as a concept doesn’t even
have a universally accepted definition.

 

Making CSR
deliver

Although CSR has become more than a buzzword ever
since the Companies Act ruling of 2013 came into effect, substantial attempts
to transform it into real actions with tangible consequences are yet to be
demonstrated by most companies operating in India. While doing this is
certainly no easy task, it cannot be achieved by a one-off employee-donation
programme, the odd visit to an NGO, or a Friday clean-up drive. As anyone who
has ever worked in an office will vouch, such activities hardly inspire much
interest or genuine concern in employees, even while the company’s CSR, HR and
leadership teams go on a self-congratulatory spree, gauged by the multiple
emails that follow. For CSR to work, it has to be built into the company ethos
and objectives and has to be a comprehensive approach that carefully analyses
and identifies the right interventions, or what is now being touted as
strategic CSR (made famous by Michael Porter). This necessarily has to go hand
in hand with the company’s culture as well as its sphere of influence, the
focus being on impact rather than glamorous causes or brand building. For
instance, a behemoth like Reliance with factories in rural areas is well placed
to work towards community development by adopting a village there, but the same
may not be true for an e-tailer, which may be better suited to advocacy and
adoption of environment-friendly practices. Companies should ideally be meshing social responsibility—synonymous
with working alongside existing norms—with social responsiveness that
anticipates and is adaptive to changes.

 

While transforming the CSR mandate into real actions with tangible consequences is no easy task, it cannot be achieved by a one-off employee-donation programme, the odd visit to an NGO, or a Friday clean-up drive. As anyone who has ever worked in an office will vouch, such activities hardly inspire much interest or genuine concern in employees, even while the company’s CSR, HR and leadership teams go on a self-congratulatory spree, gauged by the multiple emails that follow.

The litmus test for a company’s CSR success is when it
becomes an inherent and organic factor in its key decisions and overall
strategy. With a growing number of customers expressing concern over companies
engaged in unfair trade practices or exploiting sweatshop workers (think of the
Nike controversy) and actively seeking products that meet their expectations of
an ethical supply chain, CSR policies have a direct bearing on traditional
bottom-line numbers. A classic example of CSR done wrong was Coca Cola India
which, while implementing initiatives such as environmental due diligence
before acquiring lands, regulatory compliance and wastewater-treatment facilities,
came under heavy criticism due to its alleged abetment of increased pollution
and water shortages around its bottling plants and its distribution of toxic
waste to farmers. The mandatory hue and cry ensued, leaving the company scrambling
for cover.

 

One potential pitfall of strategic CSR is that by
correlating it positively to increased profits for the firm (for example, by
spurring the need for differentiated and innovative products that are socially
beneficial), it may subvert the actual meaning and purpose of CSR itself.
Monetary benefits should be the sideshow—a welcome fallout—to meaningful, long-term
CSR interventions. In a similar vein, cause-related marketing ultimately leads
to spurious and half-baked efforts aimed at promoting the brand. If the noble purpose
of striving towards a better world is viewed through the prism of profits, then
it simply becomes another tool to glamourise the annual report. An interesting
example here is the practice of choosing suppliers who are already certified by
organisations like ISO (which does not necessarily imply high standards), in
particular by large companies, instead of working proactively with existing
suppliers to implement best-in-class practices and incentivising them for a
mutual win-win relationship that guarantees worker rights and benefits as well.
As with a lot of things, companies find it easier to outsource jobs and
responsibilities except for the top-level managerial positions that are, of
course, core to their operations.

 

A relatively low-hanging fruit with regard to a more
effective CSR is better communication with community members – this is an oft-neglected
area but deserves more attention. Done right, this can lead to their active
support and involvement, which remains a key ingredient of success. Whether
this is achieved through an NGO or done directly is immaterial, the intentions
have to come through. However, this does beg the question of corporations being
equipped to engage meaningfully with them, since doing so requires a different
set of skills than those that are useful in the boardrooms. Here, partnering
with NGOs can make a tangible difference. Ultimately, the goal should not just be
sustainable resource utilisation but, in a sense, resource enrichment as well

 

CSR challenges

Pick up the annual report of any company and you will
be hard-pressed to find anything but positive news on the CSR and
sustainability front. Save for a few lines on certain limitations or unclosed
gaps, the overt and underlying messages tend to veer on the supremely upbeat
side.

While adherence to regulatory requirements and codes
of compliance as well as regular, balanced, and transparent sustainability
reports are crucial, there is a crying need for more reliable indicators of
progress in the CSR field. It is imperative that a thorough research on the
intended as well as unintended effects of such interventions is done to produce
an objective and reasonably scientific impact assessment. This may require
collaborations with academics as well as civil society groups to devise a
suitable methodology. Some suggested areas for evaluation of these programmes
are assessing the overall quality, level of participation and engagement, progress
on capacity development (which can include building skills and resources in the
community), identifying improvement areas, and devising people-centred indicators
related to the empowerment and well-being of the most marginalised sections. As
of now, there are no supporting real-world examples to illustrate this.

 

While adherence to regulatory requirements and codes of compliance as well as regular, balanced, and transparent sustainability reports are crucial, there is a crying need for more reliable indicators of progress in the CSR field. It is imperative that a thorough research on the intended as well as unintended effects of such interventions is done to produce an objective and reasonably scientific impact assessment.

Interestingly, it has been reported that only 14 of
the 50 companies listed on Nifty (and 7 out of 30 on the Sensex) had managed to
spend the mandatory 2 per cent towards their CSR in the last financial year. Now, it can be confidently assumed that in a
country like India with its intense poverty and myriad social problems, there
should not be any shortage of worthy causes to which these large corporate
entities can attach themselves to, or of eligible projects that are in
desperate need of funds and resources. It is then quite puzzling and
disheartening to note that these companies could not manage to fully utilise the
money from their CSR pool. Even a not-so-discerning observer can easily surmise
that it is either due to an unwillingness to commit or the result of a lack of
planning and organisation. Or perhaps a combination of both. In any case,
companies need to stop treating CSR as a mandate imposed by external agents and
rather consider it as vital and intrinsic to their existence—just as quarterly
profits or share prices are.

 

One explanation that has been mooted for this low
spend is that post the new law coming into effect, most companies have had to
drastically reorient their CSR activities, which earlier centred around
voluntary work by their employees and expenditure on schools and hospitals for
employees (even if these were open to a certain number of outsiders). Designing
a structured and workable plan that complies with the given protocols does take
time. Still, this is not a satisfactory reason considering that there was ample
time for companies to adjust to the new requirements since this law took quite
a while to become formalised even though everyone knew it was a question of
when and not if.

 

Corporate’s social
responsibility towards workers

While the stakeholder approach to CSR does postulate
being inclusive of the needs of all relevant stakeholders including community
members, few actually manage to incorporate the voices of the most marginalised
groups including farmers, poor people, women workers, etc., into their decision-making
processes and business considerations. A related observation is the relevance
of CSR activities when fair and equitable treatment of workers goes missing.
India is home to millions of blue-collar workers thanks to the rapid
liberalisation of the economy which inevitably drove people to urban areas and
their vicinities for employment opportunities. While C-suite executives and their
favourite newspapers lament the archaic and often complicated labour laws in
India, workers have to deal with stagnating wages, increased demands on
productivity, crackdowns on the right to unionise, and depleting benefits. Take
for example the strike that took place in September of last year and December 2013 at the Munjal Kiriu factory (a JV promoted by Hero Group, Kiriu Corporation, and Sumitomo Corporation, supplying auto parts to Hero among others) in IMT Manesar, Gurgaon. The strike, which had its genesis in the right to form a union and involved termination of contract workers, continued for more than a month before the management came to accept a tripartite settlement with the workers’ union.

More widely known is the Maruti Suzuki case that has been going on since 2012,
resulting in police cases against 215 workers, 147 workers being jailed, more
than 2,000 workers with terminated jobs including 546 permanent workers, and 35
workers languishing in jail without the prospect of bail as of October 2015. This
was done, ostensibly, due to the fact that ‘the bail
of Maruti workers will affect foreign investment’ as per a judge in
the Chandigarh High Court. Strikes have broken out frequently against the low
wages and denial of basic benefits to workers at Maruti’s factories, the last
major one happening in Manesar as recently as September, but going by the
coverage given to it by mainstream media, we may as well be living in communist
paradise.

 

Even Indian unicorns like Flipkart have
deigned to treat their delivery personnel (a key component of their business
model) like dispensable goods in their warehouses. Accusations of over-work,
mediocre wages, and a punishing schedule have been thrown at them regularly,
culminating in a strike by 400 delivery boys employed by Flipkart and Myntra in
end-July highlighting issues like lack of medical assistance, no fixed duty
timings, seven-day work weeks, and no proper toilets at the workplace.
Considering the high attrition rate, one wouldn’t be surprised if all these
claims are true.

 

While CSR has been recognised as necessarily encompassing
all stakeholders of a company – customers, employees, suppliers, shareholders,
society, and the environment – in many cases what gets actioned upon ultimately
is a narrow and limited understanding of the term. While it is important to give back to the
community and strive to make a positive impact, equally critical is the
treatment of internal stakeholders. The measure of a great company is how it
treats its lowest-paid worker. And while temporary or contract workers (in
India, contract workers are often used to bypass the stricter regulations for
permanent workers) may cost less, they are an integral part of every company
and deserve to be treated accordingly.

 

While CSR has been recognised as necessarily encompassing all stakeholders of a company – customers, employees, suppliers, shareholders, society, and the environment – in many cases what gets actioned upon ultimately is a narrow and limited understanding of the term. While it is important to give back to the community and strive to make a positive impact, equally critical is the treatment of internal stakeholders. The measure of a great company is how it treats its lowest-paid worker.

Observations

Even before the CSR mandate came into effect, plenty
of critics pointed out the potential pitfalls as well as the lack of clarity in
the drafting of this law. For example, the mechanism for enforcing this law is
quite vague and not spelled out clearly. Companies can even sidestep this
requirement by providing ‘valid’ explanations. A monitoring body to ensure that
the guidelines are being followed in letter and spirit may be required even if
it creates another level of bureaucracy. Self-regulating mechanisms do not
always work and companies have enough reasons to do less than a stellar job when
it comes to complying with required standards. ‘Greenwashing’ or promoting a
false narrative of environment-friendly practices – as the recent Volkswagen
scandal has shown – is quite rampant. However, a neutral agency like this is
unlikely to be formed anytime soon, as was recently clarified by the government.

 

Self-regulating mechanisms do not always work and companies have enough reasons to do less than a stellar job when it comes to complying with required standards. ‘Greenwashing’ or promoting a false narrative of environment-friendly practices – as the recent Volkswagen scandal has shown – is quite rampant. Hence, a monitoring body to ensure that the guidelines are being followed in letter and spirit may be required even if it creates another level of bureaucracy.


One expected fallout of the CSR law has been the
mushrooming of CSR-focused websites, newsletters, and consultants. Run a simple
search online with the relevant terms and one faces an avalanche of websites
purporting to educate you on all things CSR. However, more often than not,
these turn out to be an amalgamation of CSR-related news from around the country,
a lot of which is outdated, irrelevant, or inscrutable. Unsurprisingly, self-appointed
CSR ‘experts’ are also a dime a dozen these days, though their credibility is
usually suspect and background even more so. Clearly, not much has changed
since this report came out and the
CSR cottage industry is expected to grow rapidly.

 

A topic not directly related to CSR but worth
mentioning is corporate philanthropy, promoted by the titans of the modern
capitalist era like Gates and Buffett. In India, instances of philanthropy by
the rich are few and far between. For instance, Azim Premji is the only Indian
billionaire who has donated a good chunk of his wealth towards philanthropical
causes. There seem to be plenty of takers for religious donations though,
proving that when it comes to worldly problems and potential solutions, Indians
are as adept at outsourcing as their Western counterparts. The difference is
that the sweatshops happen to be located somewhere in the heavens.

 

The type of philanthropy practised by Gates Foundation
is not without its critics, who point out the disproportionate leverage that
these organisations hold over governments, non-profits, NGOs, and companies,
thanks to the sheer size of their coffers. Important policies affecting
millions of people can, and are, influenced by them due to their outsized
importance, although without the necessary scrutiny and public debates. The
growth in this kind of philanthropy is in contrast to spending on charities by
US companies which, according to a 2002 Harvard Business Review article, over a
15-year period has fallen by 50 per cent as a percentage of profits. Another
report stated that corporate giving had gone from 2.1 per cent of pre-tax
profits during the mid-1980s to 0.8 per cent in 2012. Perhaps this can be
attributed to increasing profits, decreasing regulations, and scepticism in the
power of altruism? With the United States setting the benchmark for companies
across the world, it will be interesting to see if CSR in India takes this
path. If they do, no doubt some creative types will find a way to circumvent
the ‘two per cent’ rule. For the sake of India, one hopes that that doesn’t
happen.