Comply or Explain: Corporate India takes on a new model of CSR
Corporations and NGOs are still working to interpret and implement India’s Companies Act, which requires corporations to spend 2 percent of their average net profits on corporate social responsibility. The law affects about 8,000 companies that will spend a combined total of about $3.2 billion.
The Companies Act was the centerpiece of the 2nd Global Conference on CSR in India last week. Hosted by IBM, in partnership with the Indian Institute of Corporate Affairs (IICA), the conference highlighted some well-seasoned players in the CSR sphere. At the center of the discussions around the new law was Bhaskar Chatterjee, CEO of IICA, who charted the way forward for the thousands of corporations that have not yet begun to design their CSR programs.
In India, businesses – from small and medium-sized enterprises to corporations – have traditionally harbored some sense of responsibility to the communities in which they operated. The mammoth Tata Group for instance, the parent of 100 companies with a total revenue of about $96 billion, has well-documented practices on fair wages and benefits for its employees and consistently spends 8-14 percent of its net profit on social causes. One case study of Tata’s CSR can be found here. Since the entrance and growth of hundreds of corporations in the ‘90s and early 2000s, however, social responsibility has not kept up. Private sector growth has catalyzed a growing middle class, but has not trickled down to impact the millions of poor.
At this point, systemic change is clearly an urgent priority. Will the CSR act be able to channel resources in the most effective manner and create a huge social impact?
Chatterjee is entrusted with the critical responsibility of bridging the gap between the government and corporations, explained that the act will open up the power of partnerships. He described it as an emerging “Indian model of CSR,” which in the synergy of the triad – government, corporate society, and civil society organizations – will be able to set “a historic example of what a nation can achieve, even as GDP growth develops.”
It’s clear that the CSR act may not promote the newest or most innovative ways to do CSR, such as integrating social impact into a company’s core business operations. Integrating social impact into a corporation’s core business is tricky; it requires a high amount of human capital and field experience, which may not be feasible for many of the 8,000 companies that fall under the purview of the act. Moreover, market-based solutions are not a cure-all; most still do not reach the poorest of the poor and are often incapable of addressing certain social issues – for example, violence against women or child marriage, which require changing deeply entrenched norms behavioral patterns at the community level – which NGOs are very well equipped to do.
Instead, the power of the act lies in unleashing the latent power of public-private partnerships at a very large scale. In order to do this, the policy has had to be restrictive in some ways. For example, the act requires a “direct benefit to the marginalized/disadvantaged/poor/deprived,” which will exclude employee volunteerism as CSR. However, it has set forth a few thoughtful standards and guidelines that aim to genuinely catalyze an impactful $3.2 billion toward the social sector, including:
The act requires corporations to have a CSR committee, which will be held accountable to implement the programs and sign off on impact reports. What’s more, the act uses public shaming as a “stick” – companies are not required to do CSR by law, but rather required to “comply or explain.” Companies’ explanations for non-compliance will be found in the public domain, fresh fodder for the democratic media and activist groups. (Companies that do not provide documentation will be fined.)
Corporations are guided to partner with experienced NGOs. Those that choose to implement programs through corporate foundations must show a three-year track record of impact. What about social enterprises? Chatterjee recognized the value of for-profit ventures, but explained that they are not included in the act – however, corporations may choose to work with any number of technical business incubators, which incidentally, includes Indian social enterprise incubators that work with for-profit social entrepreneurs.
Say no to ‘checkbook charity’
The Companies Act dictates that the CSR be rupee-measurable, but not be pure philanthropy. This regulation attempts not only to reduce empty marketing and green-washing by showcasing the actual quantum of money extending toward impact, but also hedges for corruption. Companies are barred from simply transfering funds into government programs. Similarly, to control for real impact on the ground, companies that simply write checks to charities will not be counted within the purview of CSR – they must be involved in the projects, even if those projects are being implemented by NGOs.
As recommended in a previous post, measurement is required of all companies, including a baseline study, time frame, financial allocation, clearly defined milestones, measurable objectives/goals, robust and periodic review and monitoring, and evaluation and assessment (where possible, by third party).
With these guidelines in mind and a leader who is bent on rigor and process, many NGOs and Chatterjee/IICA are hopeful this capital will be channeled properly into sweeping impact. In Chatterjee’s words, India has its chance to “set benchmarks that rest of the world will look at and admire” in a harmonious public-private partnership that “actually delivers on the ground.” The world is watching, and India’s poor are waiting – it’s time for the triad to deliver, and for us all to hold them accountable.
Nilima Achwal currently leads the SEED program at Villgro Innovations Foundation, an India-based social enterprise incubator that provides seed funding and mentoring to social enterprises that have the potential to scale up and transform rural India.