Now that corporate social responsibility (CSR) has acquired a statutory mandate, an activity that was hitherto informal and voluntary has become a formal imperative for some companies. The fact that CSR now has legal sanction suggests that many more companies, including those that do not fall within the ambit of the new law, will feel obliged to start programmes of their own. Corporate philanthropy is hardly new to the Indian scene but the expansion of business activity over the past two decades has seen CSR as a concept gaining traction and becoming a more structured activity. But what are the challenges involved in setting up credible CSR programmes that go beyond the letter of the law? What should companies do to make their investments genuinely impactful, as the law intended to achieve? What are the typical mis-steps they make? Here are some thumb rules culled from practitioners and experts in India.
Cheques and balances
It starts with the basic approach to CSR and that is linked to decisions on how to spend the money. "It is important that the corporation should not be a cheque-writing institution that donates to, say, 10 different programmes - it is better to channel resources to ensure a huge positive impact," says Rakesh Mittal, co-chairman of Bharti Foundation, the philanthropic arm of the telecom giant.
Part of the reason for the cheque-writing proclivity, says Srimathi Shivashankar, associate vice-president, Diversity & Sustainability, HCL Technologies, is that many promoters confuse CSR as "charity" rather than a long-term investment for the future. So occasional donations to, say, the Prime Minister's Relief Fund and sundry other "good causes", while useful and well within the legal criteria, rarely translate into plausible example of a company's CSR commitments, beyond the occasional photo ops for senior executives. "If CSR is undertaken as a public relations exercise, it tends to get marginalised within the system," says Ingrid Srinath, CEO, Hivos India Advisory Services, which provides programme management services for private sector CSR initiatives.
This was precisely the discovery Bharti Foundation made in its early days before it chose rural primary education as one of its primary mandates. Mittal admits that before 2000, Bharti Foundation went on a cheque-writing spree. "Soon we realised that this served no purpose; it was not the reason for which the foundation was set up, which was to give back to society. Till about 2006, Bharti set up schools of technology and scholarships in two IITs as an extension of our core business. But our real journey began when Manmohan Singh talked about the importance of primary education," he recalls. Today, Bharti Foundation runs primary, secondary and senior secondary schools in villages in six states.
Framing a focused CSR programme with coherent deliverables is vital in terms of a company's reputational value too, especially in India where even large corporations are largely promoter-driven. "If private charitable instincts of key executives or promoters are sought to be fulfilled through corporate resources, it almost amounts to corporate mis-governance," says Nachiket Mor, currently an external member of the Reserve Bank of India's Central Board who helped establish the ICICI Foundation in 2008 that focused on various inclusion initiatives for the rural poor. He cites the example of industrialist Azim Premji, who has leveraged his personal wealth to the cause of primary education and related social infrastructure through a separate personal foundation, as a good CSR governance model.
Cause and effect
So how should corporations go about choosing a CSR mandate? There are two related issues. First, says Shivashankar, the philanthropic cause should be aligned with the corporation's values and philosophies. It is an obvious point, but often overlooked by promoters eager to jump on the CSR bandwagon for reasons other than philanthropy. The varied and heavily publicised philanthropic activities of promoters facing push-back from local communities are examples of how CSR can detract from corporate reputation, even if some of the programmes do deliver tangible value.
In HCL Technologies, for example, CSR is one element of a wider, declared corporate commitment to the Triple Bottom Line, the accounting of a company's activities on social, environmental and financial parameters. Thus, HCL's CSR programmes form part of an elaborate annual Sustainability Report. This approach insulates corporations from the common stigma of tokenism, which could be a particular risk now that the rules under the Companies Act mandate specific activities that qualify as CSR.
Second, there's the issue of whether CSR should be related to a company's core competency. ICICI Bank is considered a good example of a sound strategic link between its objectives as a fast-growing bank and a mandate to promote greater financial inclusion. HCL's youth education and skill development programme, for instance, focuses on promoting digital literacy for less privileged youth.
Extending core capabilities to CSR has been a traditional strategy for several multinationals and it has worked well for them. The Britannia Nutrition Foundation (BNF), which, among other things, provides fortified biscuits as part of a major school mid-day meal scheme, is one example. There is an obvious connection and it gels with the Bangalore-headquartered company's credo of "Eat Healthy, Think Better".
BNF started under Vinita Bali when she was Britannia's managing director and she is considered its moving spirit. It began as an involvement with the World Food Programme for which Britannia made specially-formulated biscuits as part of a special package. "The insight was, if we're doing it for the rest of the world, what about doing it for the people of India who have equally great nutrition needs," she told Business Standard in an interview in 2011.
There are, however, risks to an overt corporate linkage. Procter & Gamble's Shiksha educational programme in collaboration with CRY in 2009 is cited as an example of how desisting from leveraging CSR for brand promotion can be useful. The programme involved earmarking part of the sale proceeds from P&G's detergent and personal care products for children's education though the multinational also committed funds irrespective of sales. Importantly, recall those involved with the programme, P&G did not overwhelm the agenda with branding or logo use, a fact that enhanced both its and programme's credibility.
In contrast, Hindustan Unilever's extensive Shakti Amma programme has attracted some criticism for linking a CSR objective to a corporate target. The programme was designed to enhance the livelihoods of rural women by making them salesmen of Unilever products in their villages. There are case studies of how the programme did actually empower many women but the objective was also to promote rural sales and some questioned the propriety of marketing expensive fast moving consumer goods to populations with poor access to basic infrastructure.
Although the late CK Prahalad's Bottom of the Pyramid business model, as exemplified above, held a certain attraction for a while, evidence suggests that, on the whole, programmes without the profit motive work better. For instance, some years ago Venkateshwara Hatcheries (VH) helped a small farmers' cooperative in Jharkhand set up a hatchery. The hatchery bought hatchable eggs from VH and sold day-old chicks to poor people who were helped by Pradan, an NGO that focuses on enhancing the livelihood capabilities of the poor, to take up small-scale poultry. As Deep Joshi, co-founder of Pradan, pointed out in an article, "The choice before VH was to set up a hatchery itself to get better margins … which would have been much easier to do. Yet they chose to not only sacrifice a bit on the bottom line but also walk the extra mile to work with an unconventional business partner."
DIY versus partnerships
The VH-Pradan tie-up points to another critical factor on which all practitioners agree: the importance of working through partnerships. "There is a tendency, especially among promoters of big companies, to want to set up their CSR projects by themselves," says Joshi, who is now an independent consultant. "The notion is that since they've managed to build a huge, complex company, they can as well develop their own CSR programmes. This may work for some agendas like education or healthcare, but larger community development and livelihood projects involve much more complexity and require expertise from NGOs on the ground," he adds.
There are practical reasons for this, as Bharti Foundation's Mittal points out. "Companies that develop CSR programmes by themselves could end up seeing multiple corporations doing the same thing, which defeats the purpose of the exercise."
The DIY route can also limit the ambit of a corporation's CSR programme. For instance, says HCL's Shivashankar, while the youth digital literacy programme leveraged a core competency, the Foundation did not have the in-house expertise to extend the capacity to operating, say, bridge schools for youth and women, so partnerships with experienced NGOs was a logical step. For community development alone HCL works with eight or nine NGOs. This approach, she adds, also makes it possible to maximise delivery to real beneficiaries rather than dissipating funding on administrative costs.
The "less is more" approach also informed Bharti Foundation when it decided to tie in with the prime minister's rural sanitation programme via Swachh Bharat. Since toilet-building requires specialised domain expertise, Bharti Foundation is working through Bindheshwar Pathak's Sulabh International, the established sanitation NGO.
Partnering with NGOs can be tricky, however. How do you choose the right one, especially in India where there are 2 to 3 million of them? Mittal says one way would be to focus only on those that have at least three-year track record, though this too could be a risk. He suggests the creation of a national NGO database for companies to access.
The bottom line
Ultimately, as with anything else in business, a CSR project requires some element of accountability and audit of the process. Again, though this is a clear need, Srinath of Hivos says, "The contrast is striking. When planning even the most minor promotion, companies go through a high level of diligence and demand for actionable standards. The same thing does not happen in the case of a CSR programme."
Part of the problem is that there is no set metrics to measure the success of CSR projects. Hard numbers and targets tell only one part of the story. But, as Joshi points out, setting rigid Key Performance Indicators in the nebulous world of community development can be problematic. The CSR rules themselves focus on spending. This is the easy part in a country like India. The real challenge for organisations queuing up for CSR in the future could lie in assessing whether their investments are really making a difference to India's human development indicators.
Much ado about little?
From April 1, 2014, companies of a certain size need to spend at least 2 per cent of its average net profit for the immediately preceding three financial years on corporate social responsibility activities. Section 135 of the Companies Act stipulates the cut off: "Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director." Data compiled by the Business Standard's Research Bureau shows that of the 4,000-odd listed companies, only 140 would fall within the CSR definition.