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 be not just 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 doesn’t happen.