CSR is more socially relevant when it is driven by welfare motives rather than being a mandated policy commanding philanthropy
When we flip through the world’s business history, we find that all large mercantile communities were great patrons of the art of philanthropy. They regarded it a divine tradition. The world today is witnessing a growing realisation in enterprises of the importance of altruism. Hence, a great deal of money has been flowing into the social sector. Like individual citizens who have moral and social responsibilities, businesses are being perceived as corporate citizens who need to commit time, talent and resources for welfare of society as they draw their sustenance from it. This idea has now been corporatised under the appellation, Corporate Social Responsibility, better known as CSR.
A social responsibility: CSR is a concept whereby firms integrate social and environmental concerns into their business operations and is generally understood to be a tool for achieving a balance between economic, environmental and social imperatives, while addressing expectations of shareholders and stakeholders.
In the global economy, stakeholders include customers, suppliers, employees, communities, and financiers — shareholders, bondholders plus banks and other sources of capital — and they are all intertwined
CSR is a very broad concept that aims at managing a business in a way that it contributes towards sustainable development by delivering social, economic and environmental benefits to all stakeholders. It addresses issues like human rights, corporate governance, health and safety, environmental effects, working conditions and contribution to economic development. Whatever the definition is, the purpose of CSR is to drive change towards sustainability.
We are seeing the emergence of a new crop of mega donors who are upending long-established norms in philanthropy. Not only are they increasingly willing to take on hot-button social and political issues, they also have a problem-solving and impact-making mindset. CSR is now being recognised as a critical component to an organisation’s values, its operating ethos, its business strategies and its purpose. Businesses are being measured on financial and social metrics.
CSR is often used interchangeably for Corporate Citizenship and is also linked to the concept of Triple Bottom Line Reporting (financial, social and environmental), which is used as a framework for measuring an organisation’s performance against economic, social and environmental parameters. In essence, CSR is about building sustainable businesses, which need healthy economies, markets and communities.
Over the years there have been many voices within the business community who believe that companies must break out of conventional preoccupation with profit and do more to address the world’s pressing social needs. The chorus has been joined by leaders from civil society, governments, policy think tanks and world bodies on education, health and rehabilitation. Business leadership has acknowledged the demand for enlarged corporate responsibility in ways which can reflect a profound attitudinal change individually and collectively.
It is now widely acknowledged that CSR should be a critical component to an organisation’s operating ethos, its values, and its purpose. CSR existed earlier also, however, well-meaning but inappropriate programmes were foisted on communities without any dialogue. That was replaced by the writing of blank cheques to favoured groups, often without an accompanying structure. Today, however, enlightened companies engage in extensive dialogue and planning and are forming partnerships with governments, NGOs and communities to push a wider and deeper agenda.
For a long time, the general sentiment was that for businesses, earning a profit should take precedence over ideals like acting responsibly and ethically. Even today, many companies are paying just lip service.
A legal mandate: India is the first country to mandate that firms expend at least 2 per cent of their net profits on special development projects. Its unique law, Corporate Social Responsibility Rules in the Companies Act, 2013, came into effect on April 1, 2014.
However, there is a crucial difference between the way CSR is implemented in the West and in India. A generally accepted gold standard for CSR in the Western world is that it must be closely integrated with a firm’s business strategy so that the programmes create a shared value for the company’s shareholders. In India, this linkage is explicitly prohibited for CSR; the focus is restricted solely to contribution towards societal welfare.
Experience the world over shows that CSR is more socially relevant when it is driven by altruistic motives rather than being a mandated policy commanding philanthropy. It is very difficult to legislate since moral obligations have to be inculcated, not legislated. Laws can set the minimum standards, but they cannot create an environment or ambience for a philanthropic mindset. This is why we see marked aberrations in the CSR agenda of most corporations. Many businesses harbour a variety of secondary aims and often use CSR for boosting their social profile and business markets. Such lack of well-intentioned commitment has been detrimental to this noble philosophy.
Companies are trying to dress up CSR as a business discipline and expecting that every initiative deliver business results. That is asking too much of CSR and distracts from what must be its main goal: to align a company’s social and environmental activities with its business purpose and values. If in doing so, CSR activities enhance reputation, mitigate risks and contribute to business results, it is acceptable. But for many CSR programmes, those outcomes are becoming a spillover, not their reason for being.
Challenges for socially responsible companies: It is true that since there are so many causes competing for attention, it may not be possible for organisations to have a universally inclusive mission. Studies suggest that charity leaders have a geographic bias with corporations homing in on projects closer to their headquarters. Consequently, more remote regions where development aid is acutely needed are being ignored. Politics can also skew priorities, with companies looking to gain political goodwill by funding government-led projects rather than initiating more socially relevant initiatives which are thirsty for funds.
Even as annual CSR expenditure is on the rise, the impact on the ground remains a matter of debate. CSR has usually been peripheral in most organisations and it is not woven into the texture of business. Further, it is not always necessarily transparent or mission-oriented. It may be used for enhancing the brand reputation or to provide a cover of moral counterbalance for brushing off a besmirched public image or for camouflaging dark acts. There is always a creative tension between social mission and business goals.
Moreover, a significant amount of any CSR expenditure comes with strings attached. There are terms that dictate exactly where and how funds must be used. While this may be appropriate in some cases, it reflects a serious lack of trust in the non-profit entities and hinders their ability to operate effectively. When donors insist that their money should go exclusively to the people served, there is not enough money left for the non-profit entities to focus on building their own organisations. They are, therefore, unable to invest in talent, technology, systems, or reporting. Reporting requirements are often an onerous administrative burden on these small organisations which have to devote their scarce skills to educated, English-speaking personnel for writing reports for the donors rather than running the programmes.
These development agents are the right conduits for reaching the deeper backwaters which have tougher geographical terrains and are centres of social schisms and extremist ideologies. In such regions donors also need to go beyond the sacred trimurti—sustainability, replicability and scalability —which should be restricted to mainland organisations. Too much insistence on technicalities leaves genuine development work out of the CSR net. A worm’s eye view is as critical as a bird’s eye view to ensure that projects deliver visible and lasting outcomes and leave a larger and lasting imprint.
A more important aspect of CSR that needs greater attention is the need for embedding CSR values in employees. It is only when employees align their social philosophy with that of their employers that the real benefits of CSR can materialize. A sincerely and honestly practiced charity always delivers rich dividends in the long run. That is the lesson we learn from both philosophers and business leaders. It is wise to remind ourselves again of the advice of Henry Ford, “A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large.”
(The writer is Member, NITI Aayog’s National Committee on Financial Literacy and Inclusion for Women)
