From CSR to responsible business

Giving back” continues to be the flavour of the day, particularly among returning NRIs and domestic billionaires. The latter have been egged on by the likes of Bill Gates (through his personal example) to committing substantial parts of their wealth to charity. While yet limited, any such philanthropic action by individuals is welcome, all the more so in a country where—as a recent report by Oxfam International highlights—1% of the population owns 58% of the wealth.

“Giving”, though, is too often limited to cheque-book philanthropy. Contributing to development is, therefore, mainly through donating funds. This approach is now echoed in the Companies Act 2013, which seeks to mandate corporate social responsibility (CSR) for larger companies.

 It specifies a fairly wide range of activities that can be undertaken within the ambit of the mandatory (comply or explain) 2% spend on CSR, but has an option of just giving the amount to the Prime Minister’s Relief Fund. This is conceptually similar to the far more widespread religious donations, made in the belief that giving money in the name of gods will buy blessings or success.

Surely corporates do not consider their social responsibility as being fulfilled by writing a cheque of 2% of their profits? Even for highly profitable companies, this amount would be of the order of 0.5% of their revenue; for others, it would be much smaller. 

Taking turnover as a reasonable surrogate for activity, what is their social responsibility for the remaining 99.5% of their operations? Clearly, it is necessary to consider the totality of their operations and not merely a fraction of 1% of it. This holistic perspective is the essence of “business responsibility”, a concept of which CSR is only a small part.

So what is it that a company should do to be a responsible business? Some things are obvious, and amount to basic hygiene for a company. These include complying with the law; taking care of stakeholders, including employees, customers, suppliers, investors; being aware of any health and environmental impact that result from its activities; and operating with complete honesty and integrity. 

In addition, the responsibility of business must include ensuring and contributing to the well-being of the local community and others affected by the operations of the company. It must also contribute as best as it can on the environmental impact it creates, through measures to conserve and recharge water, power, and by recycling, waste handling and minimization of pollution.

The crux of business responsibility is not only a totality-of-business approach, but also the need to go beyond the legally mandated. To their credit, industry associations have tried to do this and defined guidelines for business responsibility. However, the voluntary adoption of these has been low and disappointing.

Companies, particularly bigger ones with their strong financial muscle, could well ensure better business responsibility on the part of their suppliers. This could include governance and financial standards. 

They might also consider giving preference to businesses that—through their employment policies, location or ownership—contribute to greater inclusiveness. Needless to say, this has to be rooted in the company’s own governance, employment and other policies, which must include diversity and inclusiveness as key elements.

In many cases, large investors have a substantial influence on companies. They, too, could use such financial muscle to promote responsible business. Civil society organizations have an important role, given their growing ability to influence opinion. Having devised measures to assess performance on the dimension of business responsibility, and disseminating reports on this, they could work proactively with companies to help them promote responsible business.

Through government action, India has been a leader in legally-mandated CSR. Can corporates now take the lead in going beyond this and make India a global leader in business responsibility?

-Live Mint