Democracies are built upon the spirit of accountability and transparency. Although the ideals that we generally associate with a welfare state such as answerability, shared responsibility, integrated and wholesome development rarely find mention in what the common man perceives as the cut-throat corporate dimension, this lack of association is no better than an illusion in contemporary generations that have made “sustainability” their buzzword. In reality, trust is grossly underrated and underappreciated as one of the foundational bases of business, corporate relations and corporate governance. The concept of corporate social responsibility is, in essence, nothing but a means of nurturing and promoting this trust between corporations, the governments, and society. It is a proof of goodwill and consciousness on the part of businesses and the part they play in sustaining the very ecosystem that they thrive in and profit off.
Corporate Social Responsibility has manifold aspects and is a dynamic and evolving concept and defining it is no mean task. However, it may be studied through its history, its dimensions, the various models, the place accorded to it in the legal system, as well as its contemporary relevance—both internationally and in the Indian context.
Definition and Meaning
Attempting to comprehensively and universally define Corporate Social Responsibility (or CSR) is but a fool’s endeavour. The primary reason for this is the transient nature of obligations that CSR confers on a case-by-case basis. As has been previously mentioned, CSR is a multidimensional concept and as such is too broad to have a definition that is universally acceptable. Nevertheless, for the purposes of concise study, some definitions have been given as follows,
“Corporate Social Responsibility is a commitment to improve community well-being through discretionary business practices and corporate resources.”
“The social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time.”
“continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families, as well as of the local community and society at large”
“CSR is about how companies manage the business processes to produce an overall positive impact on society.”
Although the given definitions identify distinct aspects of CSR, a few common elements may be identified—the role of corporations, ethics, and community interests, respectively. Each of these elements are reliant on the other and consequently shape the conception and need for CSR as an acceptable and positive practice. The need that gave rise to CSR is essentially the ethical obligations that the community on a local, national, or international level both deserves and demands. In a way, by using its resources for holistic betterment, the business entity pays its premium to this planet and its people and effectively settles its debt with the spirit imbued in ethics and morality.
Aspects of Corporate Responsibility
In 1979, Archie Carroll originally gave his (now, well known) pyramid of corporate responsibility. This pyramid clearly illustrated the inter-related dimensions of responsibility in a cohesive and simple geometric diagram that was easily comprehensible.
The beauty of the Carroll’s pyramid lies in its recognition of practicality without losing sight of necessary ideals. The idea that the core job of a business is to make profit hence finds reflection in this diagrammatic scheme. Even though, on the face of it, this accomplishment may not seem as important, it acquires renewed significance in context of the long-standing debate about the role of businesses in society. The primary opposition may be succinctly expressed in the words of renowned economist Milton Friedman who wrote in 1970 that “the social responsibility of business is to increase its profits” and “the business of business is business”. Although, this is an extreme view that fails to strictly hold true in today’s times, it is still pertinent in outlining the fundamental role of a business. The economic responsibilities of a business to do well financially is the primary task entrusted to it by its shareholders failing which its fulfilment of other auxiliary responsibilities does not bear much weight.
As part of a civil society, corporations and businesses like all other entities and persons, are required to function within a legal framework. Herein, we find the second layer of corporate responsibility as outlined by Carroll, that is, a business’ responsibility to abide by the laws, rules and regulations, as are framed by the Government and applicable to them in their area of operation. Needless to say, no company may function sustainably beyond the purview of said laws.
The third layer of corporate responsibility in the pyramid is where the shape of corporate social responsibility begins to materialize. A company’s ethical responsibilities refer to those responsibilities that arise beyond legal requirements and more due to a sense of indebtedness or from the ‘heart’ of the business, so to speak. This is what identifies a company as a socially responsible, trustworthy company that meets not only its economic obligations but also certain ethical and moral expectations that are imposed upon it by society. For instance, it is this theme of reparations upon which the calculation of Green GDP is based. A reasonable presumption is made that in carrying on its business, a company will not leave its surroundings in worse condition than when it found it.
“Primum non nocere.”
(First, do no harm)
This is the last and topmost layer of the aforementioned pyramid. Philanthropic responsibility describes what a company chooses to do entirely out of its own volition and not as a result of any external or internal pressures such as, say, societal expectations, or company image; although, fulfilling one’s philanthropic responsibilities often plays a huge role in improving the company’s image and standing. The main point of distinction between ethical and philanthropic responsibility is that, where ethical responsibility stems from certain expectations placed on the business, philanthropic responsibilities stem entirely out of the business’ good intentions and desire to improve its incubatory environment, or even more simply, from its desire to help people. In that sense, it is as voluntary as it can be.
Corporate Social Responsibility within the Legal Framework
Almost all major countries in the world have certain policies that govern the CSR obligations of their major multinational corporations as well as smaller corporates. However, it is interesting that India is the first and only country to have a legislated CSR framework. In some ways, one may argue that legislating what is essentially an activity imbued with philanthropic spirit undermines the very soul and purpose of the task. However, it is a much stronger argument to propose that altruism is not the business of businesses, to take a cue from Milton Friedman. Hence, compared to the guideline approach of the US, UK, and European Union, to the mandatory reporting obligations of countries such as France, Denmark, and China, the imposition of a compulsory CSR obligation as legislation does not seem to be too far off from a logical progression. Such legislation, at the very least, is much more practicable than merely relying on a company’s goodwill to ensure their compliance with ethical standards.
Legal Provisions in India
In India, CSR is governed by Clause 135 of the Companies Act, 2013, which was passed by both Houses of the Parliament, and had received the assent of the President of India on 29 August 2013. Under this provision, every company having net worth of five hundred crore rupees or more, orturnover of one thousand crorerupees or more, ora net profit of five crore rupees or more, during the immediately preceding financial year must spend at least 2% of their average net profit in the last three financial years, as part of its CSR expenditure. Furthermore, the Act also envisages the creation of a CSR Committee to oversee a company’s CSR activities. In addition to this, companies may receive certain tax exemptions on their CSR expenditure under the provisions of the Income Tax Act, 1961.
Critically Evaluating India’s CSR Policy
Although it has been almost five years since India became the first country to have legislated CSR, it is arguable whether the full potential of its intentions at the time has been realized. Even in the presence of such legislation, non-compliance remains an issue with only just over 57% of companies actually complying with the 2% CSR stipulation. Moreover, the question remains as to whether companies really do give back equally or more than what they guzzle out of society and the environment. It is no secret, after all, that industries are notorious for impacting the environment gravely. This assumes enhanced importance in context of India’s current water crises where it is, quite literally, running out of groundwater. Herein, the merits of allowing industries to monopolize water resources is far hazier than questionable. However, more positively, without legislated CSR, whatever spending is guaranteed on CSR would undoubtedly be lower. In a word, the situation is not ideal but it is steadily progressing towards what we would like it to be. Of course, this is not to deny or obscure the environmental hazards that continue to be associated with almost all industries at present. Even so, the Indian CSR Policy is definitely a step in the right direction.
Probably, ten years or so ago, the world was still in a position where it could debate the necessity of corporate social responsibility as a concept. However, the planet has not waited around and the world has long lost the luxury of that position. Considering the rate at which mankind is losing resources, the concept of CSR finds itself burdened with much more duties than when it was first conceived. It is thus, indubitable, that mandating corporations to fulfil their ethical obligations and further increasing the share of these obligations is no longer a choice, but an indispensable necessity. The foregone observations and explanations illustrate that the pyramid of CSR has broadly given priority to profit and economic interests. However, the business ecosystem would do well to remember that without a sustainable environment, entrepreneurship has no incubator wherein it may grow and bloom. Hence, the time may have come for inversion of Carroll’s pyramid; and for the prioritization of environmental interests in a bid to save economic ones, via the only tool available—corporate social responsibility, or CSR.
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Submitted by Anomitra Debnath