2012 is set to bring major changes to corporate philanthropy in India. After more than five decades, the Companies Act is being updated to bring not only much-needed reforms in the area of governance, transparency and accountability, but also an institutionalization of Corporate Social Responsibility (CSR). According to Section 135 of the proposed new Bill, ‘Every company with a net worth of Rs. 500 crore or more, […] will have to form a CSR committee [consisting of three or more directors, of which at least one would be an independent director]. This committee will have to ensure that the company spends, in every financial year, at least two per cent of the average net profits made during the three immediately preceding years, towards CSR activities. The bill also makes it compulsory for the company to specify reasons if it fails to spend the amount.’
I still remember my firm resolution when I started working in India about three years ago to bring a holistic notion of CSR to my clients – an embedded approach that takes into account the social, legal and ethical implications of their business operations. I envisioned companies going beyond simple philanthropic contributions to communities and starting to adopt truly sustainable business practices. In many ways my professional expectations are still the same, however I have had to reconsider my strict conviction that CSR and philanthropy are firmly distinctly notions – an oxymoron of sorts. The debate surrounding the Companies Act has highlighted the dichotomy around two complementary activities, especially when applied in an Indian context.
It is quite clear that currently in India there is no clear understanding over what constitutes CSR. For the majority of companies, the focus has been on charity-based social initiatives, and many of those businesses are fiercely opposing the passing of the 2% mandatory spending. At the core of the debate there is the question of how to incentivize Indian companies to take responsibility for their actions. Most of India Inc. continues to generate extremely harmful negative externalities with a total disregard for the use of natural resources, community disruption and environmental degradation. It is a bleak and alarming situation in which the majority of Indians are bearing most of the costs while reaping negligible benefits from corporate economic activity.
The Indian government has issued Voluntary Guidelines in an effort to create a culture of corporate responsibility that is intertwined with the business operations of a company going beyond the usual paternalistic charity-based approach. It is a commendable effort in the right direction toward an embedded CSR model; however, I feel that discounting corporate philanthropy may prove detrimental.
It is important to remember that while in developed countries many social services (health and education, for example) are adequately provided by central governments, in India the scenario is entirely different. In a situation where several governmental failures and endemic corruption have allowed for the majority of the population to live below the poverty line with little or no access to basic public services, corporate philanthropy towards community initiatives has the potential for becoming a crucial contribution to the national development.
As a European, before coming to India I was adamantly resistant to the notion of corporate ‘interference’ in the public sphere. However, after three years in Mumbai, my view has slowly changed and I am starting to explore the notion that philanthropic programmes by Indian companies, if appropriately regulated and set in a multi-sector collaboration framework, are necessary to efficiently achieve large-scale social impact on a variety of crucial issues.
Cristiana Peruzzo is Head of CSR at Innovaid Advisory Services in Mumbai, India