Corporate Social Responsibility or Corporate Social Fraud: A Reality Check
Author: Mudit Saxena
Co-Author: Yashi Saxena
India, a country of 1.3 billion people, is first in the world to make Corporate Social Responsibility (CSR) mandatory. The Ministry of Corporate Affair, after the amendment made to the Companies Act in 2013 has made Corporate Social Responsibility mandatory for the companies under Section 135 of the act and enforced the same on 1st April, 2014. The companies under this new law have to spend at least 2% of their net profit in the preceding three financial years for CSR activities.
The paper critically analyses the concept of Corporate Social Responsibility and the reasons stated by the Government for making it mandatory in the country. The paper analyses how society is being benefitted through it. The method used for analysis is both qualitative and quantitative. The paper includes the ideology, principles, and philosophies of various Global leaders, businessmen, and scholars. The paper also talks about the sustainable development of the country and comparing it globally. The paper includes the contribution of various companies via CSR in the growth of the country.
The paper digs deep and brings out the malpractices in the name of CSR. The paper mentions several scams that have been done and are still prevailing in the name of CSR. The paper highlights the fact that how ethics have turn into a self-serving bias. The also paper brings out concerns about the diminishing meaning of CSR.
In its concluding paragraphs the paper brings out some suggestions to reboot Corporate Social Responsibility to its original meaning.
What is Corporate Social Responsibility (CSR)?
Corporate Social Responsibility is an approach or strategic business management by which a company achieves its organizational goals by maintaining a harmony between the environment and societal imperatives. According to the United Nations Industrial Development Organization, Corporate Social Responsibility is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. A well-implemented CSR can usher several competitive advantages like, upgraded access to capital and markets, expanded deals and benefits, operational cost reserve funds, improved profitability and quality, proficient human asset base, improved brand picture and notoriety, improved client steadfastness, better dynamic and hazard the executive’s forms. It changes the perception of the people about the company and which has a positive impact on a company like an increase in market shares, investment, increases in the purchase, etc. CSR is also termed as a “Triple-Bottom-Line-Approach” which means the company looks into its commercial activities as well as renders its duty towards the public at large.CSR is a method or measure to motivate companies to work ethically. CSR plays an important role in building the reputation of the companies.
The 2013 enactment of Companies Act by the Ministry of Corporate Affairs made India the only country in the world to mandate and regulate CSR. Even though CSR has become mandatory but this mandate is applicable upon only some categories of the companies which have been registered under the Companies Act. The CSR mandate was brought to push the country towards the accomplishment of supportable advancement objectives and open private association in changing India.
Investmentstatistics of CSR and how it works in India?
The working of CSR is quite easy to understand. The Investment in Corporate Social Responsibility (CSR), or government assistance plans like wellbeing and instruction, by India’s biggest firms, remained at Rs7,536.30 crore (around $1 billion) in the financial year that finished in March 2018, as indicated by an overview by KPMG India. The review investigated the CSR spending of India’s best 100 recorded organizations.
The CSR spending by top Indian organizations in 2018 was 47% higher than what it returns in 2014 when India previously made it compulsory for enormous private and open part firms to spend in any event 2% of their net benefits on extraordinary improvement ventures. The obligatory subsidizing applies to organizations with a turnover of Rs1000 crore or those detailing a benefit of over Rs5 crore in a year.
How CSR project funding takes place?
1. The governing body (Apex leaders in an organization) are required to share subtleties of an organization’s CSR spend in their yearly report. Despite the fact that there is no punishment if under 2% is spent, the Board must express the clarification for lesser cost in their yearly report. In this manner from the consistence just as an altruism point of view, all organizations might want to cease themselves from expressing a clarification for insignificant underspent CSR monies.
2. The following and most significant chiefs in the chain of importance of an organization with respect to CSR is its CSR Committee delegated by the Board. This advisory group is the key dynamic body that (possibly with the assistance of outer specialists) examines venture recommendations, looks for endorsement from the Board and screen the advancement of affirmed ventures until they are finished and reports it to Board for them to unveil it in their yearly report.
CSR AROUND THE GLOBE
In the global market, CSR is not new and social media has provided new opportunities and ideas to perform CSR activities. Many countries like Brazil and Indonesia which are emerging market are also indulging themselves in CSR activities. At the global level, the countries are focusing on the development of minorities, women rights and empowerment, climatic and environmental factors whereby the countries are promoting CSR activities. Companies like Netflix, Bosch, Adidas group, Michelin, Microsoft, Sony, Disney, Cannon, and Rolex are highly indulged in ethical CSR practices.
LEGO is one of the global trendsetter and is a high reputation company. This business giant has immense contribution towards sustainability, education and societal development. The major contribution done by this company via CSR is that this company replaced plastic bags with paper bags to protect the environment.
Global Guidelines on CSR
CSR moved from a social practice to a powerful business instrument. There are a few all around recoginsed rules, structures; apparatuses relating to CSR are accessible. Some of them are examined underneath, these identify with bigger viewpoint of business duty and manageability. UN Guiding Principles on Business and Human Rights: Human rights are at the core of the discussion, as is the topic of which instruments can be sent to ensure that they are regarded. In 2011, the Human Rights Council of the United Nations received solid rules for activity, the Guiding Principles on Business and Human Rights, proposed to move past the discussion on intentional as opposed to restricting instruments in the zone of human rights. The Guiding Principles lay on three columns:
• the state obligation to ensure
• the corporate duty to regard
• access to cure OECD Guidelines for Multinational Enterprises, they offer a thorough set of principles intended to give global ventures (MNEs) with direction and backing in their communications with worker’s guilds and in the zones of ecological insurance, the battle against debasement and regard of the interests of customers. The Guidelines additionally contain suggestions on abroad venture and collaboration with outside providers. The International Labour Organization (ILO), which was established in 1919, means to present the least social guidelines around the globe. The thought behind these endeavors is to keep organizations from increasing upper hands by disregarding laborers’ privileges. The strategic activities of the ILO depend on four essential standards:
• Freedom of affiliation and the privilege to aggregate haggling
• Elimination of constrained work
• Abolition of youngster work
• Elimination of separation in regard of business and occupation.
NEED OF CSR LAWS
CSR laws are intended to help in moving overabundance capital from those who are well off to the poor by means of demonstrations of a noble cause. As per accessible information, CSR laws will help in expanding the measure of money related commitment from $600 million to $2 billion every year. This will assist corporate endeavors by taking up many increasingly social, monetary and natural exercises so as to support the general people. This will likewise help corporates to have an immediate stake in improving the general public and definitely change their job from apparent exploiters of business to facilitators of improvement. They will be compelled to contribute past the surface level and help in changing the general public in a lot further way.
CSR LAWS IN INDIA
The Companies Act, 2013, a successor to The Companies Act, 1956, made CSR a mandatory demonstration. Under the warning dated 27.2.2014, under Section 135 of the new demonstration, CSR is obligatory for all organizations government or private or something else, if they meet any at least one of the accompanying financial criteria:
The total assets of the organization ought to be Rupees 500 crores or more. The yearly turnover of the organization ought to be Rupees 1000 crores or more Yearly net benefits of the organization ought to be in any event Rupees 5 crores. On the off chance that the organization meets any of the three monetary conditions as expressed above, they are required to make an advisory group to authorize its CSR command, within any event 3 executives, one of whom ought to be an autonomous director.
The duties of the previously mentioned board will be:
Production of a detailed arrangement to actualize its lawfully commanded CSR exercises. CSR acts ought to fit in with Schedule VII of the Companies Act, 2013. The council will dispense and review the cash for various CSR purposes. It will be liable for directing the execution of various CSR exercises. The advisory group will give a yearly report on the different CSR exercises embraced. CSR strategies ought to be put on the organization’s authentic site, in the structure and arrangement affirmed by the board of trustees. The directorate will undoubtedly acknowledge and follow any CSR related recommendation set up by the previously mentioned board of trustees.
The previously mentioned advisory group should routinely survey the net benefits earned by the organization and guarantee that in any event 2 percent of the equivalent is spent on CSR related exercises. The board of trustees must guarantee that nearby issues and locales are investigated first as a major aspect of CSR exercises.
Highlights OF CSR LAWS
The expansive and significant highlights of the CSR laws are as per the following:
Quantum of cash used for CSR intentions are to be necessarily remembered for the yearly benefit misfortune report discharged by the company. The CSR rules came into power on first April 2014 and will incorporate backup organizations, property, and other remote corporate associations which are engaged with business exercises in India. CSR has been characterized in a fairly expansive way in Schedule VII of Companies Act, 2013. The definition is thorough as it incorporates those particular CSR exercises recorded in Schedule VII and other social projects not recorded in plan VII, whose consideration as a CSR action is left to the organization’s discretion.
CSR and the Contemporary Society
India is one of the fastest growing economy in the world, but it lacks in human development and the irregularity of resources. But the CSR model is somewhat filling the gap in an ethical way, in India where there is a gap on the basis of revenue and socio-economic situations. The growth in India via CSR on various facets is as follow:
Research shows that provisioning framework help is a well-known development in the instruction domain, taken by generally 85% of organizations. The material, showing supplies, books, furniture, and working of libraries and schools, comprises the job of executing the instructive framework. Giving grants to understudies is another customary CSR adventure being followed by 65% of organizations. There means that numerous associations are chipping away at plans to improve the nature of instruction by giving instructing classes to youngsters, preparing essential and optional school instructors in various and refined showing techniques and learning helps. Numerous associations are likewise seen as concocting their own schools. Another expanding pattern is to help subsidizing by building limits in different regions to empower feasible development and effect.
The organizations are arranging wellness camps to chip in wellbeing help and raising care on medical issues. Infrastructural and material help is another well-known activity in the social insurance area. It incorporates clinical hardware, ambulances, facilities, wellbeing focuses just as redesign and development of emergency clinic structures. Water sanitation, youngster wellbeing, and maternal consideration are other picked territories of intrigue.
India battles hugely with natural issues. Air and water contamination are winning. CSR drives highlighted the improvement of the earth incorporate practice environmental awareness activities like tree ranch activities to bring issues to light on afforestation, endeavors to spare water and information on removal of waste. Corporates are careful about supporting issues and causes which are on occasion lumberjack heads with formative exercises. Another zone of worry that has been hailed off is CSR action that could potentially land in political discussions.
Numerous associations bolster aptitude improvement through professional preparing and vocation direction to create abilities, employability of candidates, lastly their acquiring possibilities. A few exercises started by organizations have likewise consolidated improving the attention to individuals in their own zone of activity, for example, showing ranchers present-day and upgraded cultivating procedures.
CSR and COVID-19
COVID-19 which is a sudden pandemic and has spread all over the world. The conditions are getting worst day by day. So the government has decided that the CSR fund of the company should be used for this pandemic. The government has declared that the contribution of companies, in the P.M. funds will be equivalent to CSR mandate. This fund will be used in scientific research, distribution of food, provide shelter to doctors and paramedical staff, manufacture, and distribution of testing kit, etc. The government declaration explained that the expansive based things according to Schedule 7 of the CSR approach, which manages the exercises that establish CSR action, might be deciphered generously for this reason.
Benefits of CSR
The idea of advantages of CSR for any association can shift contingent upon the idea of the venture. The business case for CSR inside an organization will probably lay on at least one of these contentions.
1. Human Resource
CSR programs can help to enlistment and maintenance. Potential enrolls frequently get some information about an association’s CSR arrangement during a meeting, and having an exhaustive approach can give a bit of leeway.
2. Emergency Crisis
Managing an emergency is a focal piece of numerous corporate techniques. Notoriety, as take a very long time to develop, can be destroyed in hours through occurrence, for example, defilement outrages or ecological mishap. These can draw undesirable consideration from controllers, courts, governments, and media. Building a certified culture of making the best decision inside a company can counterbalance these dangers.
3. Brand separation
In packed commercial centers, an organization’s making progress toward a special selling suggestion. CSR influences brand separation through client inclination and representative commitment. CSR additionally helps in building client reliability dependent on unmistakable moral qualities.
4. Permit to work
The company is quick to maintain a strategic distance from impedance in their business through tax collection. By taking substantive wilful advances, they can interest governments that they are taking issues, for example, wellbeing and security, decent variety, or the earth intensely as great corporate residents for a positive effect on the condition. CSR stays fundamental to building and keeping up a solid brand picture and altruism. A CSR activity additionally helps in shielding an organization from hurt during a dubious or testing occasion.
Unethical Practices: The Corporate Social Fraud
Vladimir Putin once said, “We need business to understand its social responsibility, that the main task and objective for a business is not to generate extra income and to become rich and transfer the money abroad, but to look and evaluate what a businessman has done for the country, for the people, on whose account he or she has become so rich.”
The Ministry of Corporate Affairs, Government of India brought the mandate of CSR with a view and objective to achieve ethical business practices in the country along with sustainable and societal development in the country. But, this view and objective were questioned when scams with respect to CSR started to get exposed. The business giants in the country have turned CSR into a tool for making more money and converting black money into white. These business houses have developed a new trend for executing CSR by opening their own charitable trust or inhering charitable trusts and practicing corporate social frauds in the name of these trusts.
In the year 2009, the third-largest IT Company in the country of that time, Satyam Computers got everyone’s attention as its biggest scam was revealed. The promoter Ramalinga Raju made his own charitable trust named Raju Foundation for conducting the CSR activities. It had opened a call center in villages, started ambulance services, etc. The company was awarded for this social activity but later on, when the scam of Satyam computers was exposed, it was found that all the activities which the company did in the name of CSR were fraudulent. He had brushed the amount for its own profit in the name of CSR.
Another famous scam was by the famous company RELIANCE known worldwide. The literal meaning of the term “reliance” is trust but the irony is the company indulged itself in such breach of trust of the public at large. Isha Foundation initiated a campaign for saving rivers and forests and needed some recognized company to promote the awareness among the people about this social cause, the company RELIANCE under its charitable trust, The Reliance Foundation took this initiative. But instead of spreading the social awareness among the people for the noble cause of the Isha Foundation, it started earning for itself by investing the CSR funds of Reliance in sports and buying sports teams.
Due these instances, 196 companies came under the radar of SERIOUS FRAUD INVESTIGATION OFFICE.
CSR have no limits and are not compelled by race, shading, or religion. Unfortunately, worry for the network is regularly confused with communism. In actuality, each resident is a benefit in financial movement and has chances to succeed. This imperceptible culture can shape more promising time to come to countries. In the event that workers don’t see the purpose of CSR activities, or comprehend the message, activities are probably not going to be powerful. Associations must understand that administration alone won’t have the option to get accomplishment in its undertaking to elevate the downtrodden of society. The present cultural showcasing idea of organizations is continually developing and has offered to ascend to another idea CSR. A significant number of the main partnerships over the world had understood the significance of being related to socially pertinent causes as a method for securing altruism and notoriety, shielding assaults and expanding business seriousness. It comes from the craving to progress nicely and receive vanity consequently just as a cultural commitment of business. The Indian corporate divisions are intending to present CSR in the little and medium endeavours (SME) segment to build its span in remote territories. Likewise, a few organizations have just begun utilizing the CSR as a procedure, which focuses on shared advancement of the organization and the network at the same time.
The companies or businesses should not pursue CSR as a liability but should take it as an opportunity to serve the society, environment and as a contribution towards the betterment of the country. Moreover, these CSR activities directly or indirectly would provide benefits to these business giants.
There should be a social audit that can ensure that whether the company is involved in ethical CSR practices or are making a profit for itself.
The government should intervene in the CSR committees so that it can be implemented without scams done in the name of CSR.
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