3 Reasons Why Mandating CSR Is Not Smart, But India Goes Ahead Anyway

by Aman Singh Das | February 18, 2011

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Can the intangible tenets of corporate social responsibility be quantified and regulated?

It's a debate that kept frequenting the news through 2010, with much of the murmurings coming Europe and Asia. Now, the wait is over. At least for India. According to The Economic Times, spending on corporate social responsibility is no longer going to be voluntary for India Inc.

In fact, every company meeting certain profitability standards annually "shall be required to spend every year at least 2 percent of the company's average net profit during the three immediately-preceding financial years, on CSR activities of the company's choosing."

Several problems here, although, no one whose been closely following this can say they didn't see this coming (We even talked about it this January: 3 Ways Corporate India Can Embrace CSR in 2011).

1) Misinterpretation of CSR

First of all, the Parliamentary Standing Committee on Finance that passed the regulation, failed to define what constitutes "CSR activities." What does that mean? Further, why are we even using CSR to define a activity unless of course the Indian government is just trying to get with the times and replace philanthropy for CSR?

2) What Does CSR Involve?

Secondly, what factors will companies base these choices on? Which communities' education, advancement, etc. could help their own bottom line? An organization that aligns with the CEO's personal interests? The company's own foundation? Or perhaps, donating that two percent to a mainstream nonprofit that helps companies easily check the compliance box without further involvement?

3) Will Regulating Social Responsibility Really be Impactful?

And finally, this will serve to undermine the very message the government is trying to send, i.e., India's private sector must become proactive about addressing its impact on the country's society and environment—and shift from shareholder profitability to stakeholder profitability, by mandating the outreach. The Economic Time summed it up well:

"The ambiguity on what constitutes spending on CSR, the manner in which the amounts should be deployed and whether corporations can give their mandatory spend to a trust or foundation run by the business itself can, in fact, lead Indian businesses ending up spending less than what they currently do on CSR."

Which means just another easy way for corporate India to check a box without ensuring large scale impact.

A small, hopeful part of me wants to say, yes, this is the push the developing economy needs to address its long term issues of social inequality, income disparity and lopsided growth. But the analytic and objective me knows it'll take much, much more than a two percent regulation to change corporate culture, whether that’s in India or America.

Comments? Thoughts? Predictions?

Related:
Mandating CSR: Indian Government Demands Full Disclosure
Moral Policing & CSR: Government Wants India Inc. to Be Beacon of Good
CSR Reporting 2.0: India Inc. to Begin Filing Reports Online

The Economic Times: Coercive social responsibility

Filed Under: CSR

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