India's Companies Bill and CSR

The Companies Bill recently passed in the upper house of India’s parliament mandating that the board of directors “shall ensure” 2% of net profits of larger firms be committed to CSR.  India is among the first countries to require CSR spending through legislation.  Although this appears to be a positive development, a key question to ask is whether Corporate Social Responsibility should be an organizational requirement.  Compelling companies to give – even to worthy causes – condones a well-known human character flaw: being forced to complete a task rarely produces the same result as willingly completing the task.

CSR is more than just spending.  CSR is a mindset seeking to benefit stakeholders within the organization’s sphere of influence.  Social responsibility is not borne from the pocket book.  It emerges from a sense of doing what is right for the greater community, creating a sense of purpose for the company.  The drawback to the legalized approach to CSR is that it leads organizations and business leaders to believe that social responsibility is simply a line item in the annual budget.  For CSR to be successfully implemented within an organization, it must be more than just an initiative but a way of doing business.  Simply spending does not capture the heart of CSR.   

Honeybees are a crucial part of the global food chain.  As the number of honeybee colonies dwindles, it affects the worldwide availability of strawberries, pears and raspberries.  Haagen-Dazs has partnered with researchers and donated to honey bee studies to help reverse the honey bee population decline.  The initiative not only helps Haagen-Dazs with the ongoing preservation of fruit for the company’s frozen novelties but other food companies and the environment.  If the company was ordered to create a CSR program, would it have a similar look and feel? 

Source: A. B. Carroll, "The Pyramid of Corporate Social Responsibility: Toward the Moral

Management of Organizational Stakeholders," Business Horizons (July-August

1991): 39-48.

CSR becomes less impactful when it’s a legal requirement.  Archie Carroll’s CSR pyramid is a helpful visual reminder of the different levels of Corporate Social Responsibility.  The pyramid, from bottom to top, is economic, legal, ethical and philanthropic.  A company must be economically viable before it can be a good corporate citizen.  In other words, a company must be engaged in a profitable business activity.  This is the foundation for all other levels.  After this, a company must hold to the legal requirements of business including but not limited to paying taxes, providing employees with a safe working environment and obeying all laws.  The economic and legal aspects of CSR (the bottom two layers of the pyramid) are required by society while the ethical aspect is expected and the philanthropic desired.  Legalizing CSR knocks the ethical component down a rung to a legal issue.  Some companies may be happy to tick a box by giving to a CSR initiative satisfying corporate obligations, but it could hinder germane progress in the social arena.  Social progress requires buy-in from management and the workforce alike, transforming the organization and making a positive impact on the community: It is certainly not an easy task.  The mandated CSR law will make it easier to spend without passion for the cause or purpose.  Will consumers be more sceptical of company efforts to be good corporate citizens when CSR is required?   

The Indian government is attempting to implement good corporate citizenship through legislation.  Only time will tell whether the new Companies Bill will truly benefit the mainstream Indian population.  While the intent of the law may be noble, it could have the opposite effect - companies donating to CSR activities out of obligation and behaving like scoundrels nonetheless.