Inevitably, the issue of enforced corporate responsibility (CSR) has got into a bind that is uniquely Indian in nature. In August, a standing committee of Parliament said companies above a certain size must mandatorily spend a percentage of net profit on CSR activities, as defined by a set of guidelines that are as broad as they are detailed. This week, the corporate sector has decided it must ask the government for a tax break if such spending is to be mandatory.
In effect, then, the corporate sector is suggesting that it be “incentivised”, to use business-speak, to be a do-gooder, a move that defeats the purpose of the CSR mandate. The contradiction in demanding a tax break on mandatory expenditure appears to have escaped the supplicants. On the whole, however, it is hard not to feel sorry for the corporate sector on this account. The mandate adds yet another level of complexity to the enormously complex business of operating in India.
The basic problem stems from a confused ideology and somewhat insincere approach to the issue on the part of the government. Besieged on all sides by charges of corruption, collusion and crony capitalism, it is looking for ways to enforce legitimacy on the corporate sector, on which it must increasingly rely for faster growth and employment. Jumping on the CSR bandwagon is considered a useful way of burnishing its image as a socially responsible government, working indefatigably for the aam aadmi, just as it has with a rural employment guarantee scheme and its proposed food security legislation.
In one sense, the move is canny — CSR is quite the rage in the aftermath of serial global meltdowns, an antidote to the domination of Big Bad Corporations. For a company, an advertised CSR focus adds immeasurably to goodwill valuations, an important attribute in these days of increasing M&As. It may also deflect attention from the potentially harmful nature of the businesses — which is why global energy producers, chemical manufacturers and tobacco companies are among the biggest spenders on social causes.
Any number of global studies have established a strong positive correlation between good corporate social performance and financial performance. So, it is not surprising that Indian corporations and multinationals in India are not immune to this fad — ask any public relations executive.
In that sense, the United Progressive Alliance has its timing right.
What it has gotten wrong is in gauging the cause and effect. CSR is essentially a conscience keeper, a good-to-have attribute for a nation’s corporate sector. But no amount of corporate do-gooding can transform society or alter a corporation’s image if the basics of governance are poor. If it could, Satyam could have been described as a model citizen, despite the sustained fraudery of its promoter. More to the point, CSR cannot be a proxy for poor regulation or bad policy. To put it in current terms, imposing CSR spending on corporations is scarcely an antidote for allocating companies coal mines virtually free or in selling telecom spectrum cheaply and through patently suspicious means.
Equally, it makes little sense to enforce CSR spending on a manufacturer but display stunning regulatory ennui when its factories spew effluents into the atmosphere and local water bodies. Or to hand over land to industrialists at throwaway prices at the cost of local communities. It matters little to a land-loser whose compensation is filtered through a network of venal middlemen or the mother of children deformed from drinking polluted water if the corporation sets up a school or health clinic as part of a legislated CSR mandate.
To be sure, India is not the only country in which the government seeks to play an active role in CSR. In Denmark, Indonesia and the US, CSR reporting is compulsory for corporations above a certain size. This may be a useful starting point for India instead of fast-tracking the issue with a spending mandate that carries dubious benefits and could encourage questionable practices.
As a corporate policy, CSR may do some good or, at the very least, it can do no harm. It is no bad thing for corporations to think in terms of their social responsibilities, even if the exercise is pro forma. But for the government to force CSR into a legislative straitjacket, that too with monetary conditions attached, is to invite trouble. In India, CSR actually runs the danger of acquiring a negative image.