14 - Chapter 6
14 - Chapter 6
14 - Chapter 6
6.1 Introduction
their business in a way that is ethical, society friendly and beneficial to community in
environment.1 This obligation shows that the organizations have to comply with
legislation and voluntarily take initiatives to improve the well-being of their employees
and their families as well as for the local community and society at large. Corporate
business in a way that is ethical and society friendly. CSR can involve a range of
investment, developing relationships with employees, customers and their families and
integrated into a business model. Ideally, CSR policy would function as a built-in, self-
1
Maimunah Ismail. “Corporate Social Responsibility and its Role in Community Development. An
International Perspective”. Journal of International Social Research. Vol 2/9, 2009. p 199.
2
Pitabas Pradhan, Subhas Parida and Babani Rath. “Corporate Social Responsibility in the Globalised
Business Environment”. The Indian Journal of Social Work, Vol 66, issue 2, April 2005, p 211.
218
regulating mechanism whereby business would monitor and ensure their adherence to
law, ethical standards, and international norms. Business would embrace responsibility
communities, stockholders and all other members of the public sphere Corporate Social
Responsibility is a very well known concept in the present day world. In fact the
corporate giants are very conversant with corporate social responsibility or corporate
sustainability –in today's parlance.3 The responsibility they have towards the society and
the community as a whole cannot be denied. A tremendous surge and then a sustained
consistency in the progress of the concept of CSR has been witnessed over a span of quite
corporate social responsibility incorporates and strives to explain and clarify numerous co
and environmental interests and welfare, keeping in full view the financial interests and
benefits of the shareholders. Responsibility has more or less taken the shape of
accountability and obligation. Business ethics has also been brought into the arena
positive catalyst in hastening the process of corporate success via motivating the
3
Id, p 213.
4
Supra. note, 1, p 1-2.
219
companies talked about responsible business or triple P (People, Planet and Profit).Some
and corporate societal marketing. It makes no difference what this social commitment of
companies is called. It is a new way of doing business to cater to the needs of the market
and its stakeholders.6 Social responsibility is the responsibility of an organization for the
impacts of its decisions and activities on society and the environment, through
transparent and ethical behavior that is consistent with sustainable development and the
welfare of the society, take into account the expectations of stakeholders, and in
compliance with applicable law and consistent with international norms of behavior and
strikes a balance between economic, social and environmental imperatives on the one
hand and the expectations and welfare of the shareholders on the other. This implies that
social responsibility or rather its execution involves a well planned strategy. Assessment
programmes, monitoring social progress, assessment of social and economic impact and
summary of outcomes and performances are of utmost importance. In other words CSR
implies that the profits of corporate houses should be diverted to socially responsible
5
Id, p 3.
6
Saheli Chakraborthy, “Corporate Social Responsibility.” 2010, p.1.
7
ISO 26000,Sydney. February-2007.
220
activities for the benefit of the society. Companies can exert an emphatic influence over
the quality and credibility of its products in the market through its CSR activities, which
has a great impact on society and also provides better synergy returns to their business. In
their various locations. CSR activities are now being undertaken throughout the globe.
The rationale for CSR has been articulated in number of ways. In essence it is about
communities, which again necessitate all business houses whether private or public to
carry out CSR activities. The government has declared it compulsory for industries to be
socially responsible. They cannot ignore the society while carrying out production and
between CSR and good public governance. Earlier this was neither specified nor
executed, as the industrial policy resolutions failed to point out the real role of industries
in society. In fact the real costs that the society incurs are primarily due to the presence
and operation of the industrial houses. Public sector units may have to shell out 2-5% of
profit in CSR. CSR for a PSU may no more be a photo opportunity for its chairman but
would involve people-centric projects to be funded by 2-5% of the company's net profit.
J.R.D TATA, the founder of TATA STEEL, stated, ‘every company has a special
continuing responsibility towards the people of the area in which it is located and in
8
.B.Wenther Williams, Chandler David-“ Strategic Corporate Social Responsibility: Stakeholders In A
Global Environment” p.1
221
which its employees and their families live.'9 The aspect of social responsibility of a
company is mainly concerned with the role of the company in addressing issues of
societal benefit and of reduction in social costs. There have been different instances
promote the interest in investment and the competence of both the society in general and
of the governments in the individual countries to adjust to the CSR programme. As for
example the Grameen Bank which started by providing loans to the low income groups
has now been able to provide financial returns which are reasonable in nature and helped
improve lives of many people. The Grameen Bank and Grameen Foundation USA
(GFUSA) have coordinated with big companies or corporate houses to expand their
activities. Always there is interdependence between the society and the organization in
question or rather a cycle of relationship exists between the two in which the society
supports and sustains the organization while the latter is totally committed to the
sustenance and development of the former10. A one sided picture distorts the entire
concept of CSR- which is conceptually a one way process of social accountability. One
must not forget that a flow in one direction cannot last long until and unless backed by
other reciprocating flows. This implies that the role played by society is not a passive one
or a neutral one. The growing responsibility of the society and the community in general
cannot be denied at all. The awareness level of the society, which in turn is correlated
with the literacy level, the standard of living, the preference pattern is a major
determinant in this area- which helps individuals to voice their demands and grievances
in a systematic manner ensuring that organizations in that locality practice CSR in a way
11
that truly benefits society. The aim of every organization is to produce and distribute
goods and services in such a way that income exceeds cost. Society expects the
They address important social issues through multiyear initiatives that can have an
immediate impact, but that also can scale in size and scope, be replicated in other
environments, and support a mechanism for achieving sustainability over time. These
initiatives generally take the form of public-private partnerships that respond to a broad
range of stakeholder perspectives and make the most of Cisco's core competencies,
including their technologies, expertise, and collaborative approach. They apply a four-
stage "Cycle of Innovation" model to each of their social investments, remaining engaged
2. Develop a framework for action, then test or pilot a solution and assess the
results.
4. Operate and maintain the initiative to the point where it can sustain itself, then
11
Id p 4
12
Supra note 10, p 5.
223
They believe that in the long run, education provides the strongest foundation for
lasting social and economic progress. By applying effective 21st century educational
techniques in schools and other institutions, communities worldwide can prepare students
to enter the local talent pool and provide the skills needed to bolster economic growth.
Cisco's education initiatives, including what may be the largest e-learning program in the
world, help fill our own talent pipeline and those of our business partners, while also
helping to close the technical skills gap that exists in many areas of the world. But
and seed the workforces of many types of organizations with knowledgeable people who
are capable of building and maintaining the infrastructures upon which societies
environment that will reward our corporate stakeholders and our fellow citizens alike.13
Responsibility has been reinforced. The modern corporation has grown phenomenally
minimum education among others. One of the developments has been creation of
(NGOs). The campaign of CSR has been actively supported by multilateral agencies like
the Word Bank, OECD, and The European Commission, among others. In the present
times CSR roles and responsibilities of large corporations have been explicitly identified
13
Id, p. 6.
224
problems, guidelines and codes based on country experiences are being adopted both by
the developed and developing countries. In fact even before a worldwide debate started
some large companies and multinationals all over the world were already engaged in
became more and more diverse, it became necessary to mandate the corporation to
respond to these requirements. A certain legal sanctity was assigned to the emerging
framework of ethical and social conduct by the corporation by way of newer legislations
by different governments.15
While in the western world in the universities and management schools there has
been a practice of a minimum curriculum on Ethics and CSR, in the developing countries
like India we don’t find much evidence of such practices. Since the process of
of business and industries. In the Indian situation, while there has been some national
debate on Ethics, not much has been debated on various aspects of CSR. It is only
recently that the NGOs, the MNCs, the Multilateral Agencies, and also the Chambers of
Commerce have started documentation of best practices. In this context the CII- UNDP-
AICTE, under the aegis of the CII-UNDP India Partnership Forum (IPF) - emphasized
the need for documenting the current experience of industries in adopting CSR.16 It was
also realized that the educational system especially, the business school should take a
14
C.V.Baxi, Nazy Chadha, “Corporate Social Responsibility: Concepts, Practices and Country
Experiences”, p 3
15
Id, p. 6.
16
Pitabas Pradhan, Subhas C. Paridha and Babani P.Rath, “Corporate Social Responsibility in the
Globalised Business Environment”, p 211.
225
lead role in promoting CSR practices. The notion held by many corporate executives in
the earlier decades of the twentieth century that ‘the business of business is business’ has
changed substantially. They have realized that earning more and more profit alone is not
sufficient for business survival- they have some responsibility towards society and the
communities in which they operate. As such, corporate social responsibility is viewed not
deprived of the minimum facilities of civilized life. There are varieties of ways in which
life.17
There is a paradigm shift in the ways business houses work. They disclose today
as they have never before. This is partly due to legal requirements and partly due to the
responsible companies are looking up to the ‘human touch’ in whatever they do.
Progressive companies today present triple bottom lines- financial, environmental and
social. Corporates are today under greater scrutiny, especially in their use of natural
resources and handling of human resources. The CSR process lies in identifying the key
stakeholders, their needs and requirements and initiating steps to fulfill them. The
business- society relationship is not new per se. It is only being rediscovered in a more
contemporary format. Our great scriptures and thinkers had millennia ago waxed
17
Id, p. 212.
226
called upon business houses to consider themselves as trustees of the society’s wealth. It
needs to dawn upon the business that an island of prosperity cannot sustain in an ocean of
poverty.18
now replaced by a duality in terms of its nature. It is not only an economic legal entity; it
is also a social entity. Moreover, statistically, the booming businesses are demonstrating
that this social responsibility that it has cast upon its shoulders voluntarily is not merely
out of altruistic practices but, in the age of globalization and ethical consumerism, it is
bringing back good in many folds to the business. Another root in this growth of this
concept that more and more corporations are adopting in their ways of functioning may
be that the social problems that it intends on solving or attempting to solve were partly or
wholly caused by them.19 CSR is most popularly understood on the basis of the
shareholder’s theory of corporation. This view suggests that corporations have no specific
social responsibilities beyond profit- maximizing for the benefit of share-holders, but that
such profit maximizing must occur within the confines of law, without deception or
collusion. According to this view, corporations meet their proper social responsibilities
18
Sudeendhra Putty.,” Corporate Governance, Corporate Social Responsibility”. SEBI & Corporate Laws
Vol 56, p 14-16.
19
H. Gordan Fitch, “Achieving Corporate Social Responsibility”, (vol.1) No.1, The Academy of
Management Review, p 38.
227
contributing to social welfare through paying taxes.20 This model is called the Hansmann
and Kraakman model21 which finds its foundation in the premise that corporate
good citizen. And as the role of corporate fiduciary is primarily characterized by the
generalized duties of loyalty, good faith, and due care, the role of corporate good citizen
three groups which have interests in its activities. The first group is of the shareholders
who are investing in the same in order to get a return on their investments to the
maximum possible benefit. The second group comprises the people involved in running
the corporation. The third group consists of the consumers and the general public at large.
This is the group which is usually neglected without compromising on the focus on
consumerism which is streamlined to serve the interest of the first group and no further.
The responsibility can be in terms of the loss that corporations cause in terms of negative
caused to the third group specified, that is the consumers and general public at large.
Academics have sought to evaluate the conditions under which decisions presumed to be
resolved by management acting as a facilitator. This implies that the management is not
20
Cynthia A Williams, “Corporate Social Responsibility in an Era of Economic Globalisation”, 35
UCDLR, 705.
21
Henry Hansmann and Reinier Kraakman, “The End of History for Corporate Law”, 89, Geo. L.J.439
(2001). p.89.
22
Jeffrey Nesteruk,” Corporations, Shareholders, And Moral Choice: A New Perspective on Corporate
Social Responsibility” 58, UCINLR 451.
23
Supra note 21, p 90.
228
only the agent of the shareholders but also of the society as a whole by acknowledging
and adopting CSR. This may be used to offset or moderate the distortive markets caused
business operations and in their interaction with their stakeholders on a voluntary basis.24
a) National level: Though there are various laws relating to safeguard of the
environment and labor law, the implementation of the same in India are least
24
European Parliament, Committee on Employment and Social Affairs, “Report on the communication
from the Commission concerning Corporate Social Responsibility”. 29 Comp. Lab. L & Policy, 459.
25
Krishna K Herrmann, “Corporate Social Responsibility and Sustainable Development”: The European
Union Initiative as a case study, 11 Ind. J. Global Legal Stud. 205.
229
initiatives is the most relevant approach to make this much needed concept a
reality.26
this responsibility no longer remained a moral or a social one, but one with legal
by international agreements involving large number of countries such that global playing
practices of CSR nature initially will not be negligible and the countries undertaking the
same shouldn’t be placed at a disadvantaged position. Hence, it will require united efforts
at the national as well as the international level in order to make this a reality. However, a
pre- supposition in order to have the regime is for this consortium of nations to realize the
moral or social duty. Looking from a pragmatic point of view, the solution seems to be
• CSR is not an optional ‘add-on’ to business core activities- but about the way
26
Id, p 207.
27
Id, p 208.
28
Alan C Neal, “Corporate Social Responsibility: Governance Gain or Laissez-Faire”, 29 Comp.Lab.L &
Pol’y J. 459.
230
Though CSR depends on the corporation’s volition, it cannot choose to ignore the
negative impact that it casts on the society completely in terms of its success rate in the
future. A company that ignores social and environmental concerns in its activities may
have substantial profit or returns in its current state and therefore, be content to continue
its operations at the status quo, but its actions nonetheless have the potential to negatively
affect society and the environment. Its potential future profit is thereby diminished when
the company does not take a holistic approach to the global business environment.29
The trends discussed here are those which started emerging from the
commencement of the 21st century. Before 2000, there was a plethora of initiatives that
were taken up at international level like the Caux Principles for Business (1994), Global
Reporting Initiatives (1999), Global Sullivan Principles (1999) etc, which shows the
OECD stands for Organization for Economic Cooperation and Development. The
guidelines which were revised in 2000 are recommendations covering nine areas of
• Employment
29
Id, p 452.
30
Oecd:org/document/3/html
231
• Human rights
• Environment
• Information disclosure
• Combating bribery
• Consumer interests
• Competition
• Taxation.
1. European Union: There have been various proclamations, often with defeatism but
occasionally with triumphalism, that “the stakeholder ideal is in gradual retreat” in its
ambivalence expressed in the 2001 Green Paper occasionally rears its head.32 The
Green Paper was conceived with a view to strengthen the enforcement of CSR in EU.
market in the world, with correspondingly greater powers to dictate rules, the source
blend of market and social values, the European Union’s standards, requirements, and
expectations influence companies and suppliers from every region. That can be
affirmed even before considering the European Union’s role as the largest source of
31
Cf. John Micklethwait & Adrian Wooldridge,” The Company: A Short History of a Revolutionary Idea”
131 (2003).
32
Id, p 187.
232
regard to CSR, the European Union has more influence and “soft power” than the
pressure is being exerted both within the official European bodies and by the
Coalition for Corporate Justice, to enhance the ability now existing in theory under
the Brussels Convention to hold European companies accountable for harms caused
abroad.33 Some existing legal rules and practices, such as the “loser pays” rule in
lawsuits and the fact that contingency fees are disfavored outside of the United
2. Canada, the United Kingdom, and Australia: The common law jurisdictions of the
United Kingdom, Canada and Australia are very much “three peas in a pod,” when it
comes to the future of CSR from a legal perspective. All three jurisdictions share
closely linked common law heritages with regard to corporate law, though they are
not as strong as they used to be and are likely to continue well into the future,
particularly in the area of progressive corporate law reform. Canada may have a touch
Proponents of progressive corporate law reform in the United Kingdom, Canada, and
33
“ Corporate social responsibility: A Business contribution to sustainable development”, COM (2002),
Available at http:// trade.ec.europa.eu/ doclib/docs/2006.
34
The Occupational Pension Schemes, 1999, S.I. 1999/1849, 2(4) (U.K).
233
Australia, particularly the NGOs, are also following parallel agendas that are likely to
3. France: The French stakeholder view of the corporation, its expansive laws on
workers’ rights, its provision for employee representation on corporate boards, its
significant amount of socially responsible investors which continues to grow, and its
mandatory CSR disclosure under the 2001 Loi relative aux nouvelles regulations
economiques,36 make France more amenable to CSR principles than most.37 The
current French challenge turns on implementing and extending the CSR principles
and improving corporate accountability. Currently, French companies are sharing best
practices through peer-to-peer learning networks including Enterprises pour les Droits
de I’Homme (EDH), the French initiative related to the Business Leaders Initiative on
Human Rights. Both France and its TNCs also have significant influence in
and other civil law jurisdictions, criminal procedure is available to private citizens to
4. United States: In U.S executives favored “leadership and vision, knowledge and
quality” over the triple-bottom line attention to environmental, financial, and social
in Europe, “CSR has focused on the environmental and social impact of companies’
business functions,” whereas in the United States, CSR was seen as mainly
35
CORE, http://www.corporate-responsibility.org.
36
Joe W.(Chip) Pitts III. “Corporate Social Responsibility: Current status and Future Evolution”. Rutgers
Journal of Law& Public Policy. Spring 2009, p 15.
37
Id, p 16.
38
Id p 17.
39
“The Measure of Things: Surveys on Corporate Citizenship”, 11 J. CORP. Citizenship 18 (2003).
234
“donations to social and artistic causes and other such acts of corporate
leadership. But as for legal developments under the CSR principles, it has lagged
behind the European Union and its member states, due to more individualistic form of
liberal capitalism practiced in the United States.41 However the notion of CSR is
spreading widely and endorsed to one degree or another by the major U.S companies
different ways, with the lowest common denominator being simple philanthropy. U.S
businesses as a whole still have a long way to go to truly understand and effectively
5. Japan: The Japanese word for “business” is made up of the elements “kei” means
“governing the world in harmony while bringing about the well-being of the people”,
and “ci” means “making ceaseless efforts to achieve”.42 With its traditions of
traditionally favored civil law, relationship based stakeholder view as opposed to the
more classic common law, bargained for exchange, shareholder view. The classic
Japanese preference for the stakeholder view, opposed to the view that the
corporation exists primarily for shareholder profit, has been confirmed empirically.
Thus experts advise that when implementing CSR in countries such as Japan,
“explanations of motivations should be couched in terms of doing the right thing for
its own sake, as opposed to explaining that CSR and CSR reporting ultimately
40
Supra note 36, p 17.
41
Ibid, p 18.
42
Yoshiro Miwa, “Corporate Social Responsibility: Dangerous and Harmful, Though Maybe not
Irrelevant”, 84 Cornell L Rev.(1999). 1227
235
benefits the firm and its owners43. The Japanese judges have greater willingness to
entertain forced labor, comfort woman, or other war crime victim compensation
claims against Japanese companies from citizens of China, Korea, or other countries.
Generally, Japan remains much less litigious and a much less favorable venue for
foreign plaintiffs, although a director could be sued for breach of fiduciary duty for an
6. South Korea: The culture of South Korea, like that of China and Japan, is
similar to those in Japan45. Such cultural values also make a difference. But there
principles. Like other Asian countries; Korea has in recent years upgraded its
corporate governance laws and practices. Korean businesses have even started taking
the human rights prong of CSR quite seriously, with several major seminars involving
Companies in India also show increasing enthusiasm for CSR. Precedents such as
the long standing mandatory environmental reporting and the support for the
precautionary principle by the Supreme Court of India undoubtedly prepare the ground.
Indian concept of CSR is associated mainly with corporate philanthropy and voluntary
community investment, including such activities as digging wells, planting trees, health
clinics in partnership with the government, and training youth. Many large businesses in
India dedicate about a half-percent of profits to charity and consider it to meet their CSR
43
Id, p 1250.
44
Koji Ishikawa, “The Rise of the Code of Conduct in Japan: Legal Analysis and Prospect”, 27 LOY.
L.A.INT’L & COMP. L. REV.101, 113-23.(2005).
45
Id, p 113.
46
Lawrence M.Friedman, “Law and Society: An Introduction” (Prentice Hall, 1977), p 6-9
236
commitment.47 Some industries, such as the publicly owned steel companies, reportedly
health, cultural development as well as building social infrastructure, water supply and
include new world-class competitors. The increasing share of global manufacturing being
taken up by Indian suppliers also drives CSR in India, as they cooperate with the Indian
Government, home country governments, such as the U.S State Department and major
the human rights and environmental requirements. The top Indian government officials
now support CSR as a “basic competitive requirement” for successful participation in the
global economy, and Indian chambers of commerce and industry associations show
similar enthusiasm.
In 2005 China revamped its Legislation on Company Law of 1994 which came
into effect in January 2006 in order to take CSR into its sweeps. Hence, CSR is part of
the legal regime of the country. Article 5 of the Company Law 2006 states that “ a
company shall comply with the laws and administrative regulations, social morality and
business morality. It shall act in good faith, accept the supervision of the government and
the general public, and bear social responsibilities”.48 Social responsibility was added
into the text of the legislation and in addition to preserving the labor protections of the
47
P.V.Indiresan, ‘Eco-Rating’ as a Social Leveller, HINDU BUS. LINE, June, 2008.
48
Company Law of People’s Republic of China. P.R.C.Laws: chinadaily.com.cn/bizchina/2006-
04/17/content-569258.htm.
237
1994 Company Law, the 2006 Company Law strengthens them by obligating companies
achieving maximum financial benefit and social good. Although accounting for a small
percentage of all funds invested worldwide, SRI has seen significant growth in recent
years, especially in Europe and the United Kingdom51. In this type of investing some
funds use negative criteria, excluding industries such as tobacco and alcohol, while others
seek out investment in companies that act proactively to address social or environmental
issues. In India, the concept of CSR may be new in theory, but in practice it is carried on
anything in return,
• Internal reasons,
religious reasons, various trusts and institutions were set up for common good of the
people like universities, orphanage, old age homes, hospitals etc. The more enlightened
49
Id, as cited from Li-Wen Lin, Corporate Social Accountability Standards in the Global Supply Chain: 15
Cardozo J. Int’l &Comp.L.321.
50
Adrian Henriques, Ten Things You Always Wanted to know about CSR, Part 2; what is the difference
between CSR and Sustainability? ETHICAL.CORP.ONLINE.
51
Michele Sutton, Between A Rock and A judicial hard place; Corporate Social Responsibility Reporting
And Potential Legal Liability Under Kasky V Nike, 72 UMKC L. Rev.1159.
52
Atul Sood and Bimal Arora, The Political Economy of Corporate Responsibility in India, p.3.
238
Jamshedji Tata, Sir Dinshaw Petit and Premchand Roychand, spearheaded the new
experienced with labor welfare as well as and his son, Ratan Tata espoused the need of
alleviation of poverty. Around 66 per cent of Tata Sons, the holding group of the Tata
Group is owned by a trust. The Tata Iron and Steel Company Limited (TISCO) and ITC
were the first organizations in India to utilize the concept of the social audit to measure
their social performance in the late 1970s. This was followed by Industrialists like
G.D.Birla, Jamnalal Bajaj, Lala Shri Ram and Ambala Sarabhai, all believed to be
influenced by Mahatma Gandhi and his theory of the ‘trusteeship’ of wealth. This period
was succeeded by a hiatus of two decades between 1960-1980 where the businesses were
class. This was also the period during which the social problems heightened. Social
unrest was rife across the country, exemplified in the unprecedented labor unrest in West
Bengal and the Naxalite movement of the 1970s54. From 1980 onwards, Indian
competition not only at the domestic but on the international level was getting ingrained
into the fabric of corporate life. From here a marked difference in the approach to social
good was seen. The shift from philanthropy to responsibility towards the society could be
discerned. The concept of Corporate Citizenship was emerged.55 This shift earmarks the
pinning of responsibility onto the corporations to what it owes to the society in return for
the damage caused as opposed to a self imposed philanthropic duty based on selflessness.
53
Id, p.22.
54
Id, p.25.
55
Id, p. 25
239
the goodwill or the reputation was now becoming more and more of an
practices.
such foresight into the present was by way of adopting CSR practices. These
Profit.56
Ranbaxy, Hindustan Lever Limited (HLL), ITC Limited, and Larsen and Tubro (L&T)
Limited etc realized the growing importance of CSR and took such responsibility on
them. The government has tried to extend the policy of job reservation for SC/STs in the
private sector also. However, this has been made a voluntary measure that a corporation
can take up and the industries in general have been showing its commitment to
Industries (CII) and the FICCI have in recent years tried to keep in step with the global
trend of corporate houses playing a socially responsible role. Both organizations have
and so on57. CII Center of Excellence for Responsive Corporate Citizenship was set up by
internal policies. CII is also a signatory of the UN Global Compact which encourages the
The Indian Industries were becoming more and more aware of their responsibility
towards the society and were performing it. The survey done by the Centre for Social
Market58 explored perceptions of and attitude toward corporate social and environmental
Corporate Governance 59
Environment 53
Occupational Health Safety 53
Education 47
Social welfare 41
Anti-discrimination 35
Community development 29
Workers Rights: child labor 29
Human Rights 12
57
Corporate Social Responsibility, cited from financial express.com/news/ Corporate Social
Responsibility/43839.
58
Ibid.
241
This data shows that there is no prolific activity with regard to CSR but it shows
a promise in the form of growing awareness. Also, the varied heads under which positive
action is taken shows the diversity in the nature of this responsibility undertaken by the
corporations.
A survey was carried out by TNS India and the Times Foundation with the aim of
revealed that over 90 per cent of all major Indian organizations surveyed were involved
in CSR initiatives. But the private sector was more involved in CSR activities than the
• Airtel has tied up with Indian Farmers Fertilizer Cooperative Limited (IFFCO) to
reach farmers directly. Farmers will receive free voice messages twice daily on
fertilizer availability, loan information and market rates. The farmers can also call
their queries.
• Aptech a leading education player with a global presence that has played a broad
and continued role in encouraging and nurturing education throughout the country
has provided computers at schools, education to the deprived, and training and
59
Everybody’s Business: Times of India.indiatimes.com/Delhi.
60
Dr. V.V.S.K. Prasad, CSR initiatives of Indian Companies- A Study, p.2
242
• Arcelor Mittal will spend about US$ 500 million as part of its CSR initiatives in
• Bajaj Auto, Ashok Leyland, Tata Motors, Mahindra & Mahindra and Eicher
conservation, and the project ‘Elixir of life’ to provide drinking water to nearly
Indian villages.
villages.
In 1996, the company created the Infosys Foundation as a not-for –profit trust to
• ITC’s e-Chapual has been a great developmental initiative which has added value
1953 with the purpose of promoting education. Its vision is to renovate the lives
of people in India through education and financial assistance across age groups
and across income strata. This Trust undertakes a number of education plans,
which make a difference to the lives of worthy students. The Trust has provided
more than Rs 7.5 crore in the form of grants, scholarships and loans. It promotes
education by way of scholarships. The Nanhi Kali project (for children) has over
3,300 children under it and the company aims to increase the number to 10,000 in
the next two years by reaching out to the underprivileged children in the rural
areas.
• Pepsico India signed the CII-Code for Ecologically Sustainable Business Growth.
subscribers.
• Reliance Power (R-Power) has made an investment of over US$12.63 billion for
renewable and alternative energy resources such as hydroelectric, wind, solar and
project to change plastic, organic and electronic waste into petroleum without the
• Tata Group in India has a range of CSR projects, most of which are community
The company also endorses sports as a way of life. It has established a football
healthcare services all over the country with programs like rural health
development. Tata Group also has an organized relief program in case of natural
work during the Gujarat earthquakes and Orissa floods. It also supports education,
with over 500 schools and also is a benefactor of the arts and culture. It has done
abundant work in improving the environment and local populations around its
industries.
• The Byraju Foundation’s Gram IT programme has generated a rural BPO model.
working to get rid of its ‘global warmer’ stigma through greater use of gases with
interest of the society at large. Even though the main motive of business is to earn profit,
corporate should take initiative for welfare of the society and should perform its activities
within the framework of environmental norms. Previously it was voluntary for all the
corporates to take steps for betterment of the society except government rules and
61
Mansie Shah. Emerging trends in Corporate Social Responsibility. Company Law Journal, 2009, p 171-
172.
245
legislative step CSR has gained significant place in New Companies Act, 2013.
New Companies Act, 2013 includes following criteria for Corporate Social
Responsibility.63
If any company during any of the financial year fulfills, any of above conditions,
Then it should –
• The committee shall formulate and recommend CSR Policy which indicates
62
Indian Corporate Law; CSR in India; Some Theory and Practice, http:// indiacorplaw. blogspot.
in/2009/04.
63
Lord Holme and Richard Watts. Corporate Social Responsibility, Mandating Companies to Contribute,
p 2.
246
• The company shall give preference to its local area from where it operates, for
CSR activities.64
Ministry of Corporate Affairs, Government of India has recently notified the Section 135
of the Companies Act, 2013 along with Companies (Corporate Social Responsibility
Policy) Rules, 2014 "hereinafter CSR Rules" and other notifications related thereto which
makes it mandatory (with effect from 1st April, 2014) for certain companies who fulfill
the criteria as mentioned under Sub Section 1 of Section 135 to comply with the
responsibility for the company's effects on the environment and impact on social welfare.
The term generally applies to companies efforts that go beyond what may be required by
be referred to as "corporate citizenship" and can involve incurring short-term costs that
do not provide an immediate financial benefit to the company, but instead promote
2014 have defined the term "Corporate Social Responsibility (CSR)" as follows:
"Corporate Social Responsibility (CSR)" means and includes but is not limited to: i.
Projects or programs relating to activities specified in Schedule VII to to the Act; orii.
64
Id, p. 4-6.
65
Corporate Social Responsibility Law Bulletin, http://www.fasken.com/en/india-releases-csr-policy-rules-
companies-cat/
66
Megha Kapoor. “India: Corporate Social Responsibility: Mandating Companies to contribute towards
society”. April 2014, p 1.
67
http://www.cuts-international.org/pdf/Draft-CSR_ Rules_2013.pdf
247
as per declared CSR Policy of the company subject to the condition that such policy will
cover subjects enumerated in Schedule VII of the Act. Meaning thereby, conducting all
those activities which are either specified under Schedule VII to the Companies Act,
2013 or those which are recommended by the CSR Committee of the Board as per the
CSR Policy and are undertaken by the Board of directors of the Company will be covered
6.9.1 Activities Covered Under Schedule VII of the Companies Act 2013
Ministry of Corporate Affairs vide its Notification dated 27th February, 2014
(which shall come into force with effect from 1st April, 2014) has come up with the
modified Schedule VII which covers wide range of activities which can be undertaken by
vocation skills especially among children, women, elderly, and the differently
for women and orphans; setting up old age homes, day care centers and such
68
http://www.investopedia.com/terms/c/corp-socialresponsibility. Asp
69
Supra note 66, p.2-3.
248
other facilities for senior citizens and measures for reducing inequalities faced
and fauna, animal welfare, agro forestry, conservation of natural resources and
buildings and sites of historical importance and works of art, setting up public
• Measures for the benefit of armed forces veterans, war widows and their
dependents;
• Contribution to the Prime Ministers' National Relief Fund or any other fund
and welfare of the Scheduled Castes, the Scheduled Tribes, other backward
The above mentioned activities constitute the CSR activities and the companies
which are covered under the provisions of Section 135 shall be required to carry out any
one or more of the activities as specified above along with following its CSR Policy.
70
Id, p 3.
249
The companies on whom the provisions of the CSR shall be applicable are contained in
Sub Section 1 of Section 135 of the Companies Act, 2013. As per the said section, the
companies having Net worth of INR 500 crore or more; or Turnover of INR 1000 crore
or more; or Net Profit of INR 5 crore or more during any financial year shall be required
Committee" with effect from 1st April, 2014. The pictorial representation below gives the
Once a company is covered under the ambit of the CSR, it shall be required to
comply with the provisions of the CSR. The companies covered under the Sub section 1
director.
2. The Board's report shall disclose the compositions of the CSR Committee.
3. All such companies shall spend, in every financial year, at least two per cent
of the average net profits of the company made during the three immediately
Policy. It has been clarified that the average net profits shall be calculated in
accordance with the provisions of Section 198 of the Companies Act, 2013.
Also, proviso to the Rule provide 3(1) of the CSR Rules that the net worth,
accordance with balance sheet and profit and loss account of such company
The Companies Act, 2013, has introduced the idea of CSR to the forefront and
disclosure. Transparency, Accountability and Corporate Governance are the pillars of the
New Companies Act, 2013. With the view of increasing the social contribution of the
India Inc., a ‘Mandatory CSR provision’ has been inserted. Here spending as CSR has
been made mandatory. Schedule VII of the Act, which lists out the CSR activities,
suggests communities to be the focal point. On the other hand, by discussing a company’s
relationship to its stakeholders and integrating CSR into its core operations, the draft
rules suggest that CSR needs to go beyond communities and beyond the concept of
philanthropy.
schedule VII.73
72
Id.
73
Section 135(1), Indian Companies Act,2013: (2013)5 Comp LJ 1 (St).
74
Id.
251
iii) Monitoring the policy: Monitor the Corporate Social Responsibility policy of
i) Approval of the CSR policy: The board has to approve the CSR Policy of the
ii) Disclosure of the CSR Policy: The board of the company shall also disclose
the contents of such policy in its report and also place it on the company’s
iii) Ensuring the implementation of the CSR Policy: The Implementation of the
CSR policy is equally important as its framing. The Board is to ensure that
6.9.2 Limitations on the scope of CSR (activities excluded from the scope of CSR)
Activities only ‘inside’ India to be considered in CSR: There are some limitations
by which certain activities would not count towards CSR. Only CSR spending within
India would be recognized under the Act. Any activities undertaken outside India will be
excluded.80 This may have some impact on Indian companies having international
operations and vice versa, where CSR activities conducted in other jurisdictions would
not be taken into account for the purpose of fulfillment of obligations under Section 135.
75
Section 135(3)(c), Companies Act,2013:(2013)5 Comp LJ 1 (St).
76
Section 135(4) (a), Companies Act, 2013: (2013)5 Comp LJ 1 (St).
77
Id.
78
Id.
79
Section 135(4) (b), Companies Act,2013: (2013) 5 Comp LJ 1 (St).
80
Rule 4 (4), Companies (Corporate Social Responsibility) Rules,2014: 2 Comp LJ 12 (St).
252
Activities for the Benefits of Employees or their family to be excluded from the
scope of CSR: Activities which are solely for the benefit of employees or their family
members are excluded from the scope of CSR activity.81 This is a measure to ensure that
CSR obligations are more widely undertaken, but it undermines the general principle that
employees are a key stakeholder in the entire scheme of things. This should not result in a
scenario where companies carry out CSR activities that benefit other stakeholders, but
6.9.3 Consequences of not spending the required 2% of the average net profits
Duty on the Board to explain the failure: If the company fails to spend such
amount, the Board shall specify the reasons in its report for not spending the amount.82
Failure to spend the 2% will not entail any liability on the company: A company is not
subject to liability for failing to spend on CSR. However, a company and its officers are
subject to liability for not explaining such a failure in the annual report of the board of
In this part a critical analysis of Section 135 of Companies Act, 2013 is made.
Lack of legal enforceability/ penal provision: There are no penal consequences which
emanate on failure to spend. It may undermine the very purpose of a mandatory CSR
provision as the companies may just cite phony reasons to avoid spending the required
amount.
81
Rule 4 (5), Companies( Corporate Social Responsibility) Rules,2014: 2 Comp LJ 12 (St).
82
Proviso of Sec 135, Companies Act, 2013: (2013) 5 Comp LJ 1 (St).
83
Section 134(8), Companies Act,2013: (2013)5 Comp LJ 1 (St).
253
Comply or explain: According to the provision, Companies have to comply with the
provision and spend on CSR or explain the reason for non-compliance. The problem here
is who would be the authority to whom the reasons for non-compliance shall be given,
what reasons might be satisfactory? What factors might be kept in mind while deciding
the said matter? If the company is not satisfied with the decision, would there be a scope
for further appeal? - need to be answered. There is no standard for a valid explanation on
failure to spend the money; there is currently any guidance as to what constitutes a
sufficient or statutorily valid explanation for failure to spend in the board report. In
addition, a company and its directors are liable even if they fail to report on CSR
The list given under Schedule VII of Companies Act is very narrow and short-
sighted: Schedule VII of the Act enlists the activities such as those relating to eradicating
poverty and hunger, promotion of education, combating diseases, social business projects
and many more considered as CSR activities. Promotions of human rights, investment in
NGOs etc for the wellbeing of others are not included in this exhaustive list. It is not clear
what constitutes CSR, as activities specified under Schedule VII appear to be an inclusive
Another problem lies with both the provisos of Section 135: It has been said that
preference has to be given to the area in which the company is operating. Given the fact
that most of business houses and their manufacturing factories are mostly located in fairly
developing states, this approach might impede the resources only to few local areas,
thereby depriving the other underdeveloped ones with development, where the companies
Recommendations:
provision for the enforceability of Section 135. Penal consequences should be attached in
order to make this clause enforceable. The Act should specify a clear definition of CSR in
order to avoid any ambiguity. Many universally recognized principles are to be adopted,
such as the ten principles of the UN Global Compact, to broaden the meaning and ambit
of CSR. By virtue of sec. 135, now the companies have to manage their accounts so as to
include activities provided under schedule VII of the Companies Act 2013. There is a
criticism that such a provision has created unfriendliness in the minds of the companies.
The contention is that the CSR is basically based on contributions out of generosity and
this provision makes it mandatory and the system has started showing distrust in them.
Section 135 of the new Companies Act, 2013 has led to debates as to whether or not CSR
tendency among corporate houses to come out with lofty CSR policies when left alone as
opposed to the situation when they are compelled to do so. Thus the corporate sector
resists stronger regulatory framework in this regard. General argument is that what was
naturally voluntary should not be made mandatory and such step is nothing but the
disguised form of taxation. In total the criticism is that such a move is not developmental
one. Nevertheless the inclusion of the CSR mandate under the Companies Act, 2013 is an
attempt to supplement the government’s efforts of involving the Corporate World in the
country’s development agenda. This is an innovative and positive approach which will
surely strengthen the social standing of every company implementing CSR. The
provision in the new companies act, 2013 could be considered as analogous to the Small
255
and Medium Enterprises (SMEs) which significantly contributes to the economic growth
as well as the welfare of the citizens. It is stated in the proviso to sec. 135 of the new
Companies act, 2013 that the company while performing its function under this
provision, shall give preference to the local area and areas around it, for spending the
amount earmarked for corporate social responsibilities activities. Hence the CSR
is a group of people sharing a common purpose, who are interdependent for the
fulfillment of certain needs, which live in close proximity and interact on a regular basis.
The group is respectful and considerate of the individuality of other persons within the
communicate openly, and of responsibility to and for others as well as to one’s self. Most
important, there exists community leaders who are responsible for the success of any
community event, depending on the needs of the community, and the individual’s own
of people by providing these groups with the skills they need to effect change in their
own communities. Community developers must understand both how to work with
84
According to Cambridge Dictionary-“ the people living in one particular area or people who are
considered as a unit because of their common interests, social group, or nationality.
256
individuals and how to affect communities’ positions within the context of larger social
institutions.85
communities based on social justice and mutual respect. It is about influencing power
structures to remove the barriers that prevent people from participating in the issues that
affect their lives. Community workers facilitate the participation of people in this process.
They enable linkages to be made between communities and with the development of
continuous learning. Educating, enabling and empowering are at the core of Community
development.86
Community Development is the widely used term which is given by the United
community conducted in such a way to help solve community problems with a minimum
help from external organizations. External organizations include government and non-
government organizations, and corporations of various types and sizes such as small and
self-reliance in the community for short and long term goals, but not to defy the CSR
roles of the various types of business firms. The definition of community development in
85
Geraldine Nkechinyere Okeudo, “Effect of Corporate Social Responsibility on the Society”, British
Journal of Science, Vol 3(1) Jan 2012.
86
Federation of Community Development Learning (2009); Available at: http://www.fcdl.org.uk.
257
about the active involvement of people in the issues that affect their lives and focuses on
the relation between individuals and groups and the institutions which shape their
whenever people come together to identify what is relevant to them and act on issues of
disadvantage, to enable them to collectively identify needs and rights, clarify objectives
and take action to meet these within a democratic framework which respects the needs
and right of others. Community work recognizes the need to celebrate diversity and
The role of CSR in Community development referred here is any direct and indirect
business processes.
that corporation is a place just to get employment and producer of goods and
87
Maimunah Ismail. Corporate Social Responsibility and its role in community development: An
International perspective.Journal of International social research.vol2/9.2009.
88
Id, p. 204.
258
harmony. This becomes a social capital that is very essential for community
development.89
reducing their environmental footprint. These companies take the view that
company’s growth and social reputation. This can only serve to enhance the
traction.90 Example: “We green the earth” slogan made by some MNCs in
Malaysia who own large golf areas within the vicinity of residential areas is
CSR such as those reported by the United Nations. They are- “ friends of the
89
Towers Perrin. Corporate Social Responsibility: It’s no longer an option. Available at
http://www.towersperrin.com/tp/showdctmdoc.jsp,
90
Id,
91
United Nations Global Compact. Overview of the UN Global Compact. http://www.unglobalcompact.
org/AboutTheGC/index.html,
259
strategic policy for businesses that are committed to aligning their operations
and strategies within the areas of human rights, labor and environment. By
doing so, business, as a primary agent driving globalization, can help ensure
that markets, commerce, technology and finance advance in ways that benefit
reflected in the growth of the Global Compact, which today stands as the
over 5000 corporate participants and stakeholders from over 130 countries.
e) Help to get talents: Organizations with a reputation for CSR can take
have more positive attitudes in other areas that correlate with better
customer service, act quickly to address and resolve customer concerns, and
are led by people in senior management who act in the best interest of
customers.92
between MNCs that give concerns on CSR and communities in the host
countries. MNC is a corporation that has its facilities and other assets in more
countries other than its home country. Such companies have offices and/or
92
Supra note 75.P 205.
260
coupled with CSR processes, the targeted community would gain in the
development.94
objectives. For ex, In the United States, Intel and IBM assisted under-staffed
cameras with video processing abilities in areas where there are high rates of
how they can use technology to prevent crime or at least to use it to detect
93
Barton J.H, “.New trends in Technology Transfer: Implications for National and International Policy”,
Issue No 18. Geneva: International Centre for Trade and Sustainable Development.
CSR@Intel (2009). Does Technology have a role in Community Development? Available at
94
http://blogs.intel.com/csr.2008
95
CSR@Intel (2009). Does Technology have a role in Community Development? Available at
http://blogs.intel.com/csr.2008.
261
workforce and family members, as well as the local community and society at
culture of the firm including the CEO and employees, and ethical influences,
managers are among the internal factors determining the success of CSR
Further the 2013 Act itself directly covers many Community Development
example rural development projects, rural sports etc., are some of the
categories.
6.11 Conclusion
consider the interests of society by taking responsibility for the impact of their activities
Davis, K. “Can business afford to ignore Corporate Social Responsibility?” California Management
96
Review, 2, p 70-72.
262
well as the environment. This is seen to extend beyond the statutory obligation to comply
with legislation as organizations are voluntarily taking further steps to improve the
quality of life for employees and their families as well as for the local community and
society at large. If a company chooses to follow the way of CSR, it will integrate ethical
concerns in its activities and in its interaction with all the stakeholders. This implies that
the corporate units function in such a way that their CSR activities in all likelihood
actually reach out to the beneficiaries –the society in general. The ethical considerations
are aimed at preparing the groundwork for expecting the correct reaction or response of
their CSR generated activities. Changing winds of time are propelling the companies into
performs this duty not in the end of philanthropic good but it performs its role as a
responsible corporate citizen. Considering the increasing vast and complex business
environment, the move of the Ministry of Corporate Affairs is a welcoming step which
apart from contributing towards society, plays a major role in various ways which
includes attracting and retaining employees in a such a way as to increase morale of the
employees along with creating a sense of belonging to the company and contributes
towards enhancement of company’s own goodwill, positive image along with bringing
competitive advantages.