CORPORATE SOCIAL RESPONSIBILITY

admin | December 20, 2016 | Company law | No Comments

This article was written by Prerna Sharma, a student of RMLNLU.

The totality of CSR relates to responsibilities corporations have towards society within which they are based and operated. The concept is comprehended differently by different people. They might perceive it as commitment of a company to manage its various roles in society, as producer, employer, customer and citizen in a responsible manner while for others it might be synonymous to Corporate Citizenship or Social Action Program. As far as the key definition of CSR is concerned, there is no single widely accepted definition of CSR as it is a continuous subject that has attracted increased academic attention since 1990.[1] Even among sympathetic analysts, key questions generate controversy. There is disagreement about the role of business in society, the scope of responsibilities, what responsibility entails, and the relationship between CSR and law. The attempt to specify meaning of CSR begins with its ‘social’ element. The idea is simply that corporations have responsibilities towards the broader society. Within the CSR, the generation of financial returns could only be one part of it which alone could not be the extent as it is too narrow a conception of what counts as society.[2] There are three basic definitions that have been found and garnered wide acceptance and favor. These include:[3]

CSR is defined as a commitment to improve community well being through discretionary business practices and contributions of corporate resources[4]; whereas Mallen Baker refers it as a way companies manage the business processes to produce an overall positive impact on society.
CSR is the counting commitment by business to behave ethically and contribute to economic development by improving the quality of life of workforce and their families as well as their local community and society at large.[5]
CSR is defined as a multi-layered concept that could be differentiated into four interrelated aspects- economic, legal, ethical and philanthropic responsibilities.[6]

When one sees the corporations affect the well-being, no matter for good or ill, of many people besides the shareholders in direct and potentially important ways, it becomes apparent that the social dimension of business activity extends to a broad array of stakeholders as in, workers, creditors, local communities, suppliers and consumers. The technique to define the breadth of corporate obligation and the process to entail such an obligation are difficult and controversial. For the purpose of CSR it is enough to claim that it implies an obligation to take reasonable steps to refrain from damaging the environment and, where possible to assist others in doing the same. CSR might also extend to a positive duty to improve environmental conditions. Reasonableness depends on the idiosyncratic characteristics of particular firm, including its capabilities and limitations, its financial conditions.

When talking about CSR as a concept, it is not a new concept in India, however, the Ministry of Corporate Affairs; Government of India has recently notified the Section 135 of the Companies Act, 2013 along with Companies (CSR Policy) Rules 2014 and other notifications related thereto which makes it mandatory for certain companies which fulfils the criteria as mentioned under sub-section 1 of Section 135 of the Act to comply with provisions relevant to CSR. CSR is generally[7] understood as being the way through which a company achieves balance of economic, environmental and social imperatives[8], while at the same time addressing the expectations of shareholders. The term ‘CSR’ can be referred as corporate initiative to assess and take 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 regulators or environmental protection groups. CSR may also be adverted 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 positive social and environmental change. Moreover, by proposing the CSR Rules as per Section 135 of the Act of 2013, the chairperson of CSR committee mentioned the principle as, that it is the process by which an organization evolves its relationships with the stakeholders for common good, and demonstrates its commitment in this regard by adoption of appropriate business processes and strategies. It is not a charity or a mere donation; rather it is a way of conducting business by which corporate entities visibly contributes towards social good. The socially responsible companies do not limit themselves to using resources to engage in activities that increase only their profits. They use CSR to integrate economic, environmental and social objectives with the company’s operations and growth.[9]

Coming to the varying objectives of the policy, it shall be read in line with Section 135 of the Companies act, 2013, CSR Policy Rules 2014 and such other rules, regulations, circulars and notifications (collectively referred hereinafter as ‘Regulations’) as may be applicable and as amended from time to time and will inter-alia, provide for the following:

Establishing a guideline for compliance with the provisions of regulations to dedicate a percentage of Company’s profits for social projects
Ensuring the implementation of CSR initiatives in letter and spirit through appropriate procedures and reporting
Creating opportunities for employees to participate in socially responsible initiatives

The companies to whom the provisions of CSR shall be applicable are contained in sub-section 1 of Section 135 of 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 to constitute a CSR Committee of the board with the effect from 1^st April, 2014. The provision requires every company having such prescribed net worth/ turnover/ net profit shall be covered within the ambit of CSR provisions. The Section 135 has used the term ‘companies’ which connotes a wider meaning and shall include the foreign companies having branch or project offices in India. Now, the question arises as to when the compliance with the provisions of CSR should be adhered to and what are the activities that are supposed to be performed. Firstly, as provided by section 135(1) itself, the companies shall be required to constitute CSR committee of the board which shall be comprised of three or more directors, out of which at least one director shall be an independent director. Secondly, the report of the Board shall disclose the compositions of the CSR committee. Thirdly, all such companies shall spend in every financial year at least two percent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its CSR policy. The clarity has been found out in the average net profits that need to be calculated in accordance with the provisions of Section 198 of the Companies Act, 2013. Also, proviso to the rule provides for 3(1) of CSR rules that the net worth, turnover, net profit of a foreign company of the Act shall be computed in accordance with balance sheet and profit and loss account of such company prepared in accordance with the provisions of clause (a) of sub-section (1) of section 381 and section 198 of the companies act, 2013. The CSR (constituted in pursuance of Section 135) also plays an important role in carrying the various activities as in formulation and recommendation to the board, CSR Policy which indicates the activities to be undertaken by company as specified in schedule VII, also in recommendation of the amount of expenditure that has to be incurred on activities referred to in clause (a) of the Section, finally monitors the CSR Policy of the company from time to time.

As far as the ethical model of CSR is concerned, there is lack of its agreed definition and it comes as no surprise that there have been several models (theories) of CSR.[10] They are in turn derived from range of different normative imperatives.[11] (One analysis identifies the four: instrumental, political, integrative and ethical). At a general level, one approach is to distinguish between CSR theories that conceive of the corporation as a discrete entity and others that see it instead as an aggregation of stakeholder constituencies.[12] The entity based theories rely on the idea of corporate personality characterizing a corporate person in a certain way and then from a descriptive assertion deriving a normative conclusion about the relation between the corporation and society. The corporation here could be defined as a citizen, analogous to a natural person.[13] The political implications of citizenship idea could form the basis for the theory of corporation’s social responsibility.[14]

[1] ‘Corporate Social Responsibility Theories’ by D.Mele , The Oxford Handbook of CSR (Oxford University Press, 2008)

[2] ibid

[3] Retrieved from ‘Corporate Social Responsibility: Towards a Sustainable Future’ on 16^th December, 2016 at 18:41 http://webcache.googleusercontent.com/search?q=cache:YdLgCMiwqbMJ:www.in.kpmg.com/pdf/csr_whitepaper.pdf+&cd=4&hl=en&ct=clnk&gl=in

[4] By Philip Kotler and Nancy Lee (2005)

[5] According to “World Business Council for Sustainable Development”

[6] By Archie Carroll in 1991

[7] As mentioned by United Nations Industrial Development Organization (UNIDO)

[8] Triple-Bottom-Line-Approach

[9] Retrieved from the “Corporate Social Responsibility Policy 2013 on 18^th December 2016 at 18:56 from http://webcache.googleusercontent.com/search?q=cache:aLy7HbHtF58J:finance.bih.nic.in/Documents/CSR-Policy.pdf+&cd=1&hl=en&ct=clnk&gl=in

[10] ibid at 1

[11] ‘CSR Theories: Mapping the Territory’ (2004) 53(1-2), Journal of Business Ethics 51

[12] See D.Millon, ‘Corporate Theory and CSR’ (from an unpublished paper)