CB BureauLast month, CauseBecause through a right to information (RTI) query to the ministry of corporate affairs had learnt that the government did not have any specific mechanism to evaluate the impact of corporate social responsibility (CSR) programmes of companies (read about it here). The query had also revealed that the government was not in the middle of developing any mechanism and, instead, expected companies to file self-audited reports.
Interestingly, the recommendation from the high-level committee – headed by former secretary Anil Baijal – to suggest measures for improved monitoring of implementation of CSR policies says that the government may not even create any such mechanism and leave it to companies to evaluate their impact”through independent agencies if required. The committee observes that the government should have no role in engaging experts for monitoring the quality and effectiveness ofCSRexpenditure of companies. The report says that a company’s board of directors is accountable for the quality and efficacy of CSR expenditure. It may appoint an external agency to evaluate the same if it so desires. Of course, the government can engage experts to evaluate the quality and efficacy of CSR spending at the macro level for reviewing its policy, not for regulating CSR spending of companies.
Employee value in CSR
On the much-talked-about subject of monetising ’employee services’ and including them in CSR spends, the committee has recommended that such services be included in CSR expenditure as this will encourage employees to engage in CSR activities. If the government really wants to encourage employee involvement, as desired by the committee, it should allow inclusion of the cost of employee services in CSR spending.
However, most industry experts and development-sector organisations disagree with this recommendation and say that inclusion of the monetised value may create some problems if the spends are not defined and capped to a limit.
‘Monetising employee services and adding them in CSR expenditure will not make much sense until there is a cap on such an expense. For instance, if CEOs are engaging in CSR activities and monetisation of their service is being done on their work-hour cost to the company, one can imagine how much time cost that will be,’ Neerja Singh, group executive vice president, regional head, Responsible Banking, Yes Bank, had told CauseBecause in a recent conversation.
Singh agreed that such a rule may be exploited by companies and that they may overstate cost of employee services.
The same subject was discussed by CSR leaders at the event Unearthing the True Value of CSR through Skills-Based Volunteering, held on 30 October in New Delhi. In addition to corporate leaders, the event had representation from Indian Institute of Corporate Affairs and the ministry of rural development. The larger consensus here was that non-inclusion of cost of employee services may dampen the enthusiasm of companies for involving employees in CSR projects. The non-inclusion may also result in loss of opportunity to leverage innovation, management, and many such professional skills available with the corporate workforce. The event was co-hosted byVSOandIBMwith CauseBecause as their outreach partners.
‘We are creating volunteer initiatives that have a lasting impact on the ground with the communities we serve as well as balance business and employee interest in changing people’s lives. While engaging with such initiatives, corporate volunteers acquire new skills and find the experience both personally and professionally rewarding,’ Shaleen Rakesh, executive director at VSO India, told CauseBecause.
Debangshu Ganguly, country head, strategic partnerships, Caritas India, said, ‘We have several programmes wherein much value is added by corporate volunteers, who bring their special skills and help us in effective implementation of projects. Being a charitable organisation, we cannot afford to have executives from top business schools. This need is met through volunteers from business houses. Hence, I believe that volunteering or employees’ work hours, of course with a cap, should be included in a company’s CSR spends.’
According to the Baijal Committee’s report, this concern may be addressed by introducing some kind of an audit that will provide assurance that proper records of employees’ involvement in CSR activities are maintained and that the management’s computation of the employee cost is in accordance with accepted cost-accounting principles.
Penalty clause
In the context of penalty for non-compliance, the CauseBecause RTI had cleared doubts about a specific clause for penalty and also established that non-compliance with Section 135 would mean non-compliance with the Act itself, and defaulting companies would be penalised as per the provision in Section 134 of the Companies Act 2013.
- The Baijal Committee is of the view that leniency may be shown in the initial two/three years to enable companies to graduate to a culture of compliance. The extant law considers non-disclosure as non-compliance. Failure of a company to spend two per cent of its average net profit of the previous three years on CSR is not considered to be non-compliance, but not revealing the reason for the same will mean non-compliance.
- Also, the Baijal Committee may have wrongly interpreted the law in perceiving that failure to spend the full amount in a particular year is noncompliance, and has gone on to make a strange recommendation. It suggests that the law be amended to mandate that after five years the unspent CSR funds should be transferred to one of the funds (viz. Prime Minister’s Relief Fund) specified in Schedule VII. This recommendation may not go down well within the industry.
Confusion forward
Understandably, Indian companies need time to adapt to the evolving CSR lexicon in the country. They also need consistent information exchange, knowledge platforms, and focussed discussions, in addition to independent organisations that facilitate opportunities to interact with potential implementation partners that comply with disclosure requirements. Companies will also need an extensive database of credible organisations. Advising on this aspect, Baijal committee says that the government may not maintain a data bank of CSR implementing agencies – NGOs, trusts, Section 8 companies, etc. It may recommend names of a few organisations after their due diligence, but it should not be mandated for the companies to implement projects with only listed organisations (with IICA or any government-affiliated body). As of now, the companies have freedom to forge partnerships with any organisation that has been operational for at least three years and has not been blacklisted.
On this aspect, the corporate world seems to have different opinions. One section says that since the government has mandated CSR, they should also suggest partners to implement the same. On the other hand are the companies that are already implementing projects in partnerships with various organisations and may have to withdraw some of those projects solely because their partners may not be listed by the government or the government-affiliated agency.
Moreover, there is the fear that the government system of listing and recommending partners may fail when more and more companies that fall within the ambit of the law start scouting for partners. In conversations with CauseBecause, many corporate houses have expressed concern over the possibility of corruption in the government system whereby NGOs with political affiliations may be recommended and the ones at the grassroots are left out.