Description
Analysis of the Government’s decision of mandatory Investment of 2% of Net Profits in CSRActivities by the companies
CORPORATE SOCIAL RESPONSIBILTY ASSIGNMENT
“Critical Analysis of the Government’s decision of mandatory Investment of 2% of Net Profits in CSR Activities by the companies”.
SUBMITTED BY: AKSHAT VAID(91004)
DATE OF SUBMISSION: 9-01-2011 SUBMITTED TO: DUE DATE: 9-01-2011
Prof. Sushil Kumar FORE SCHOOL OF MANAGEMENT
B-18 , Qutab Institutional Area, New Delhi
January 9, 2011
[CORPORATE SOCIAL RESPONSIBILTY] RES
Government’s decision: Mandatory Investment of 2% of Net Profits in CSR Activities. According to the Ministry of Company Affairs, Corporate social responsibility (CSR) spends will now be made mandatory for corporate India. Under this, companies will have to spend 2% of the average net profit on CSR. Mandatory CSR will be made part of the amendment to the Companies Bill. Currently, CSR 2009 guidelines are voluntary. But now CSR will be mandatory for companies. If the proposal is accepted by the government and Parliament approves, based on the performance over the last three financial years (up to March 2010), 3,434 companies would have to set ancial aside over Rs 4,300 crore during this fiscal. The Procedure to be followed by the companies:
CSR will be mandatory for companies with Rs 500 crore networth, Rs 1,000 crore sales, or net profit of Rs 5 crore or more Such companies will have to formulate a CSR policy
Directors will have to disclose CSR in their annual report
FMG 2009-2011 | Akshat Vaid(91004)
January 9, 2011
[CORPORATE SOCIAL RESPONSIBILTY]
A study funded by the Asian Development Bank found that by early last year India had 50 dollar billionaires who together controlled wealth equivalent to 20 per cent of gross domestic product at one end and at the other end it has one third of the world’s poor population. And this gap is continuously increasing. To reduce this gap there is a need to reduce this disparity between the rich and the poor and here Corporate Social Responsibilty serves the purpose.But will the government’s decision to make it mandatory for the corporates to invest 2% of their net profits into corporate social responsibilty do any good to the society? There are many arguments against the mandatory introduction of CSR. First, many companies in India, even small business do incorporate aspects of CSR into their corporate policy. Indian business traditionally has favoured a charity-based CSR model which is now extending towards stakeholder engagement in terms of environmental awareness, improvement in work conditions etc. Second, a mandatory report could lead to increased incidences of green-washing, pseudo-CSR distracting from those enterprises that really are doing something noteworthy thereby unfairly levelling the playing field. Third, CSR functions as a built-in, selfregulating mechanism whereby businesses would monitor and ensure its adherence to law, ethical standards and international norms. Fig1: McDonalds Greenwashing.
FMG 2009-2011 | Akshat Vaid(91004)
January 9, 2011
[CORPORATE SOCIAL RESPONSIBILTY]
Finally, the compulsion can force many companies to look at CSR as an add-on to 'business as usual' and not as a different way of doing business. Shifting India Inc. away from charity-based CSR activities towards a more holistic model should be the Government's responsibility; not insisting on mandatory reporting. CSR without proper reporting tools like GRI etc and methods like LCA, input/output modelling is a pointless exercise. It would be more appreciable if the Government could provide support to those companies that do want to report CSR activities and help them to create wellrounded initiatives. The current approach appears to be a method to weed out unethical companies which is not the purpose of CSR - that is what the law is there for. Is the decision Right or wrong?
Voluntary compliance are always better than forced, companies who do not want to do it forcefully will find a way out of ii. It should be proactively done by business community. While the government must realize that its role should essentially remain that of a facilitator, the corporate sector must realize that organizations can successfully and profitably address all three elements of the ‘triple bottom line’ and, in doing so, become innovative. Management, innovation and sustainability research is increasingly demonstrating that sustainability can open doors to new business models and engage new markets. This has to be done by strengthening links with supply chains, and engaging with local communities, governments, NGOs and even competitors as laid down by the government document. The emerging global reality for businesses is that CSR can no longer be viewed as an optional project, but has to be seen as an intrinsic part of business, a way of life. The CSR guidelines are more likely to succeed because they have a basis on industry consensus and dialogue, and this is something the government will do well to keep in mind. Conclusion:
FMG 2009-2011 | Akshat Vaid(91004)
January 9, 2011
[CORPORATE SOCIAL RESPONSIBILTY]
In the end I would like to say that this law of investing 2% of the net profits in the CSR activities is not genuine. The government wants the corporate sector to give it back to the society but businesses are meant to generate profits. So this cap of 2% should be removed. This would only lead to greenwashing and pseudo –CSR until the companies are doing it willingly. And as a country we don’t need investment anywhere rather we need investment in a few key areas like education, employment etc. So unless the companies are investing in these areas there is no fun of having this compulsory CSR investment. Good and ethical companies have realized that they should give it back to the society and they are doing their bit even without it being compulsory like Ratan Tata came up with nano-the people’s car, HUL’s shaktiman campaign, Airtel’s improve education campaign (http://www.airtelvodafone.com/csr/corporatesocialrespon sibility/ -the link shows that even without it being compulsory in 2008, Airtel generated its CSR report then as well). Such activities are win-win for both and that why companies are themselves coming forward to invest in CSR activities themselves.
FMG 2009-2011 | Akshat Vaid(91004)
January 9, 2011
[CORPORATE SOCIAL RESPONSIBILTY]
References:
•
http://www.mca.gov.in/Ministry/latestnews/CSR_Voluntary_Guidelines_24dec2009.p df
• • •
http://www.outlookindia.com/article.aspx?266463 http://www.business-standard.com/india/news/india-inc-faces-2-csr-levy/407350/ http://indianeconomy.org/2005/10/24/tata-corporate-social-responsibility-and-miltonfriedman/
****************************************************************
FMG 2009-2011 | Akshat Vaid(91004)
doc_739336729.pdf
Analysis of the Government’s decision of mandatory Investment of 2% of Net Profits in CSRActivities by the companies
CORPORATE SOCIAL RESPONSIBILTY ASSIGNMENT
“Critical Analysis of the Government’s decision of mandatory Investment of 2% of Net Profits in CSR Activities by the companies”.
SUBMITTED BY: AKSHAT VAID(91004)
DATE OF SUBMISSION: 9-01-2011 SUBMITTED TO: DUE DATE: 9-01-2011
Prof. Sushil Kumar FORE SCHOOL OF MANAGEMENT
B-18 , Qutab Institutional Area, New Delhi
January 9, 2011
[CORPORATE SOCIAL RESPONSIBILTY] RES
Government’s decision: Mandatory Investment of 2% of Net Profits in CSR Activities. According to the Ministry of Company Affairs, Corporate social responsibility (CSR) spends will now be made mandatory for corporate India. Under this, companies will have to spend 2% of the average net profit on CSR. Mandatory CSR will be made part of the amendment to the Companies Bill. Currently, CSR 2009 guidelines are voluntary. But now CSR will be mandatory for companies. If the proposal is accepted by the government and Parliament approves, based on the performance over the last three financial years (up to March 2010), 3,434 companies would have to set ancial aside over Rs 4,300 crore during this fiscal. The Procedure to be followed by the companies:
CSR will be mandatory for companies with Rs 500 crore networth, Rs 1,000 crore sales, or net profit of Rs 5 crore or more Such companies will have to formulate a CSR policy
Directors will have to disclose CSR in their annual report
FMG 2009-2011 | Akshat Vaid(91004)
January 9, 2011
[CORPORATE SOCIAL RESPONSIBILTY]
A study funded by the Asian Development Bank found that by early last year India had 50 dollar billionaires who together controlled wealth equivalent to 20 per cent of gross domestic product at one end and at the other end it has one third of the world’s poor population. And this gap is continuously increasing. To reduce this gap there is a need to reduce this disparity between the rich and the poor and here Corporate Social Responsibilty serves the purpose.But will the government’s decision to make it mandatory for the corporates to invest 2% of their net profits into corporate social responsibilty do any good to the society? There are many arguments against the mandatory introduction of CSR. First, many companies in India, even small business do incorporate aspects of CSR into their corporate policy. Indian business traditionally has favoured a charity-based CSR model which is now extending towards stakeholder engagement in terms of environmental awareness, improvement in work conditions etc. Second, a mandatory report could lead to increased incidences of green-washing, pseudo-CSR distracting from those enterprises that really are doing something noteworthy thereby unfairly levelling the playing field. Third, CSR functions as a built-in, selfregulating mechanism whereby businesses would monitor and ensure its adherence to law, ethical standards and international norms. Fig1: McDonalds Greenwashing.
FMG 2009-2011 | Akshat Vaid(91004)
January 9, 2011
[CORPORATE SOCIAL RESPONSIBILTY]
Finally, the compulsion can force many companies to look at CSR as an add-on to 'business as usual' and not as a different way of doing business. Shifting India Inc. away from charity-based CSR activities towards a more holistic model should be the Government's responsibility; not insisting on mandatory reporting. CSR without proper reporting tools like GRI etc and methods like LCA, input/output modelling is a pointless exercise. It would be more appreciable if the Government could provide support to those companies that do want to report CSR activities and help them to create wellrounded initiatives. The current approach appears to be a method to weed out unethical companies which is not the purpose of CSR - that is what the law is there for. Is the decision Right or wrong?
Voluntary compliance are always better than forced, companies who do not want to do it forcefully will find a way out of ii. It should be proactively done by business community. While the government must realize that its role should essentially remain that of a facilitator, the corporate sector must realize that organizations can successfully and profitably address all three elements of the ‘triple bottom line’ and, in doing so, become innovative. Management, innovation and sustainability research is increasingly demonstrating that sustainability can open doors to new business models and engage new markets. This has to be done by strengthening links with supply chains, and engaging with local communities, governments, NGOs and even competitors as laid down by the government document. The emerging global reality for businesses is that CSR can no longer be viewed as an optional project, but has to be seen as an intrinsic part of business, a way of life. The CSR guidelines are more likely to succeed because they have a basis on industry consensus and dialogue, and this is something the government will do well to keep in mind. Conclusion:
FMG 2009-2011 | Akshat Vaid(91004)
January 9, 2011
[CORPORATE SOCIAL RESPONSIBILTY]
In the end I would like to say that this law of investing 2% of the net profits in the CSR activities is not genuine. The government wants the corporate sector to give it back to the society but businesses are meant to generate profits. So this cap of 2% should be removed. This would only lead to greenwashing and pseudo –CSR until the companies are doing it willingly. And as a country we don’t need investment anywhere rather we need investment in a few key areas like education, employment etc. So unless the companies are investing in these areas there is no fun of having this compulsory CSR investment. Good and ethical companies have realized that they should give it back to the society and they are doing their bit even without it being compulsory like Ratan Tata came up with nano-the people’s car, HUL’s shaktiman campaign, Airtel’s improve education campaign (http://www.airtelvodafone.com/csr/corporatesocialrespon sibility/ -the link shows that even without it being compulsory in 2008, Airtel generated its CSR report then as well). Such activities are win-win for both and that why companies are themselves coming forward to invest in CSR activities themselves.
FMG 2009-2011 | Akshat Vaid(91004)
January 9, 2011
[CORPORATE SOCIAL RESPONSIBILTY]
References:
•
http://www.mca.gov.in/Ministry/latestnews/CSR_Voluntary_Guidelines_24dec2009.p df
• • •
http://www.outlookindia.com/article.aspx?266463 http://www.business-standard.com/india/news/india-inc-faces-2-csr-levy/407350/ http://indianeconomy.org/2005/10/24/tata-corporate-social-responsibility-and-miltonfriedman/
****************************************************************
FMG 2009-2011 | Akshat Vaid(91004)
doc_739336729.pdf