Supremacy of Bottom Line
The answer depends upon your sphere of responsibility and its scope. The core issue is: Do businesses exist solely for the purpose of maximizing profits? If you are an old-fashioned money maker and want to hide behind the argument that the only goal businesses is to maximize you may not be able to charm people anymore. Why?
The world today is sitting on a planet that has been dirtied and damaged badly everywhere by the money makers, traditionally known as corporate houses, industrialists and business houses armed by ever improving technological automations and advancements. Their acts have ideological justification from some theorists like Milton Friedman who proclaimed that companies exist solely for profit (So, hell with the people and planet!!). Prophesized in 1970s, followers of Milton feel no moral compunction in exploiting people, society or natural resources for their sole sacred goal: maximizing profits. Bhopal tragedy took away lives of thousands and left many times more were sentenced to life-long suffering. The only reaction of the corporate world has been that of indignant silence and disregard for human suffering – it is nothing surprising because the world is ruled by money, not people.
The history of business world tells us that its focus has been getting narrower over the decades; today it is purely a money-making activity – divorced of ethics and sense of discipline and responsibilities towards society and nature. At present it is only driven by greed of money and control. The proof lies in the all round destruction of ecology and nature at the global scale leading to problems of global warming and climate change. And who would suffer the most? Those who contributed the least towards these problems – the poor and un-industrialized nations.
Certainly, some form of mechanism is needed where businesses widen their horizon and cause least damage of ethics in the society and stop plundering the nature. There is more to human existence and living than merely making money.
The Concept of CSR
Essentially, CSR is the deliberate inclusion of public concern into corporate decisions. The principles of social responsibility revolve around sustainability, accountability and transparency. The concept of CSR has been developing since the early 1970s. The scope of CSR is quite unlimited and can cover any number of activities related to environment protection, labor security, human rights, community development, enterprise and economic development, promoting healthcare, education, leadership development, disaster relief, and so on. It is most effective when applied to solve community problems using company’s expertise.
Why Quality of Corporate Governance is a Serious Issue in India
If the Rs 7000 crore Satyam fraud shook the country in 2009, it was a shenanigan of individual nature. But then what started with the 2G spectrum and CWG game scams and the most recent exposures of shoddy manner of coal mine allotments suggest that what we have in India is crony capitalism. People at the top distribute country’s resources among them; ordinary citizens are taken as merely deaf and dumb spectators. It has badly eroded people’s confidence in the way economy and corporate affairs are managed in the country.
Lack of transparency coupled with series of scams without a strong response from the regulators to address the fundamental issues relating to corporate mismanagement in India, are hampering the pace of development apart from creating a negative impact on foreign investments into India. For example, Norwegian Telenor’s joint venture partner Unitech’s founding family member was sent to jail for his shoddy role in purchase of telecom license. The US’s Bain capital accused its investee company Lilliput, maker of kid’s garments, of fudging accounts.
India ranks 134, out of 183 countries on the World Bank’s index of ‘Ease of Doing Business’.
Unattended corporate governance issues could take India back to the 90s when most global investors avoided the country due to its poor governance standards.
What has Triggered the CSR Debate in India?
It is the mandatory 2 percent spending on social causes in the Companies Bill 2011, pending in the Lok Sabha, that has ignited the debate on CSR in India. The corporate world obviously doesn’t want any “nobility” imposed upon it. They find comfort in fulfilling their responsibility within the legal framework and paying taxes at best. They feel their job is to make money using people and natural resources; making societies better and world cleaner place is not their mandate.
Currently, Indian businesses follow provisions of the Companies Act, 1956, which are no longer appropriate to the today’s business and economic environment. Thus, a revision process was started in 2003 and a Companies Bill 2008 was tabled in Parliament, but lapsed with the dissolution of the Lok Sabha in 2009.
While many of the provisions of the Companies Bill are of great importance to industry, it’s the CSR provision that has created the most debate. The Companies Bill, 2011 proposes that companies with net worth above Rs. 500 crore, an annual turnover of over Rs. 1,000 crore, or annual net profit of Rs 5 crore shall earmark 2 percent of average net profits of three years towards CSR. In the draft proposal, it was only declaratory which works through peer and public pressures as in many western nations.
Industry has been almost totally against a mandatory clause; it was suggesting tax breaks for those who meet the voluntary targets. Critics argue that companies may resort to camouflaging activities to meet such regulations, particularly during recessionary periods and economic downturns. Some NGOs and philanthropic community also have similar concerns. Some others have called it “outsourcing of governance.” They see it as government burdening its failure on the corporate.
In the Western nations, laws do not stipulate mandatory CSR quantum, but they make disclosure of CSR spending mandatory in the annual reports. Thus, when the Bill passes in the parliament India will become the first country to have CSR spending mandated by the law.
But the moot question still remains: Should Businesses have any Responsibility towards Society?
You may like to read a detailed report of CSR: mandatory CSR in India