Mandatory Corporate Social Responsibility: Let companies compete for doing the best

Corporate philanthropy is not a new concept. Thousands of large corporates all over the world have spent millions of dollars on charity, without any government telling them. But there are many companies who benefited a lot from the public infrastructure, yet didn't spend a penny for the community around them.  This has prompted many governments to bring in legislation to make it mandatory for companies to spend for charity.

Indian Government has passed its Companies bill (which replaces the 56 year old Companies Act of 1956) in its both houses with support from all political parties. This has paved the way for systematic fund flow for social welfare activities. The following are the salient features of the provisions related to the Corporate Social Responsibility (CSR) Project, incorporated in the Companies Bill which is pending Presidential assent.

Applicable for which companies?

Every company having Net worth of 500 Cr or more or

                                  Turnover of 1000 Cr or more or

                                  Net Profit of 5 Cr or more                during any Financial Year

Who will decide about how much to spend, and to which project?

• The Company has to constitute a CSR committee with a minimum of three directors, of which at least one should be an Independent Director.
• Committee should recommend the amount of expenditure  to be incurred
• The Committee should monitor the CSR activities from time to time
• The Board of the company shall approve the projects based on the recommendations
• At least 2% of the average Net Profit of the company of the last three years should be spent for CSR
• The companies shall give preference to the local area where they operate

Which are the areas/activities companies can spend?

Activities relating to

-          Eradicating extreme hunger and poverty

-          Promotion of Education

-          Promoting gender equality and empowering women

-          Reducing child mortality and improving maternal mortality

-          Combating human immunodeficiency virus, AIDS, Malaria, and other diseases

-          Ensuing environmental sustainability

-          Employment enhancing skills

-          Social business projects

-          Contributions to Prime Minister’s Relief Fund and similar funds established by Central and State governments for welfare of SC/ST/OBC/Minorities/Women

-          Such other matters as may be prescribed

What will happen if the companies don’t spend?

The companies need to specify the reasons in detail, if they couldn’t spend

Any other provisions to promote charitable activities in the Companies Bill?

Companies Bill provide for incorporation of companies solely for charitable purposes. If any company is formed for charitable activities, then the government may issue licence to allow that person/ Association of persons to be registered as a limited company without the addition to its name the word ‘limited’ or ‘Private Limited’. (Clause 8)

Under Clause 181, the Board of Directors may contribute to bonafide charitable or other funds

Under Clause 182, upto 7.5% of average on Net Profits of last three years can be spent as contribution to political parties  based on a resolution  passed at a meeting of the Board of Directors.

All expenditure and the names  of donees should be disclosed in the Profit and Loss Account.

Board of Directors can also contribute to National Defence Fund

What is the punishment for non-compliance to the provisions?

Fine upto 5 times the amount and/or  the Officer will be punished with imprisonment which can extend upto 6 months and 5 times the amount as fine

Some suggestions for companies

Beware of unscrupulous NGOs

There is a proliferation of NGOs in the country. There are many multinational NGOs whose objectives are not purely charitable. Many in the charity business exist for making profits, for enjoying comforts and the accompanying flamboyant lifestyle. There are a few aimed at destabilizing the country through overt and covert actions and subtle criticisms against the government and governance claiming to be the champions of poor persons, minorities, farmers and tribals. These NGOs are the happiest ones on hearing about the mandatory provision of CSR. Most of these NGOS will clamour for funds by demonstrating their political power and showcasing their power point presentations and strategically chosen photographs of their activities in the past.

Why not do the philanthropy directly?

Every company has managers and employees who are socially committed and willing to utilize their spare time for welfare activities. There will be more accountability if the company does the charitable activities through them. This will create team work, leadership skills, camaraderie, and loyalty among the employees. There will be a definite improvement in the productivity of the company once the energy and time of the employees and managers are channeled for such positive purpose. The companies should appoint welfare officers with experience in organizing charitable activities in reputed NGOs and in Government. Specific weightage may be given in the annual appraisals to all employees who actively participate in CSR activities

Let the auditors be proactive

Apart from critically analysing the figures in a company, the auditors should be proactive in analysing the nature of charitable activities undertaken by the company and the ultimate results for the target population. They need to report the findings to the CSR committee as well as the Board.

Some suggestions regarding the areas to focus

Start with a socio-economic survey

There is extreme hunger and poverty among many communities irrespective of the fact that they belong to privileged or under-privileged communities. In fact, there is substantial number of very poor persons among many ‘upper’ castes also. Companies can conduct socio-economic surveys in and around their location and identify the beneficiaries scientifically. They can take the help of independent survey agencies, but the surveys should be monitored by the company officials. There are several survey companies who outsource this work to unqualified field agents.

Promotion of education

a.       Infrastructural support to government schools and colleges

b.      Extend the facilities for vocational training for students

c.       Institute scholarships for poor students who are meritorious

d.      Identify and sponsor the education of students

e.      Collaborate with leading institutes to give coaching in Information Technology

f.        Establish research centres, academic chairs, and departments in colleges and universities

g.       Sponsor educational tours

h.      Adopt government schools and unaided private schools that cater to poor students

Promoting gender equality and empowering women

a.       Establishing and aiding women Self Help Groups

b.      Establishing credit societies for women

c.       Sponsoring meritorious women candidates for professional courses

d.      Free legal aid for women victims of offences

e.      Organize or arrange career oriented courses for women

Reducing child mortality and improving maternal health

a.       Sponsor the treatment of poor women admitted in govt hospitals for delivery

b.      Sponsor the expenses of babies born at govt hospitals

c.       Establish separate blocks to govt hospitals for poor women and children

Combating diseases

a.       Organize awareness programs in the community

b.      Publish information brochures for educating the public

c.       Organize vaccination programs

d.      Organize disease detection camps

e.      Sponsor the treatments of HIV patients

f.        Sponsor the families of people died due to AIDS

g.       Produce television programs and documentaries to spread public health

Ensuring environmental sustainability

a.       Organize eco-camps

b.      Implement schemes for cleaning the towns

c.       Establish permanent institutions for environmental protection

d.      Organize ecological awareness programs

e.      Publish magazines

Employment enhancing skills

a.       Establish vocational training institutes

b.      Sponsor career orientation programs in colleges

c.       Organize seminars by experts in institutions

d.      Give training to workers to improve their skills

e.      Give professional training to carpenters, artisans, plumbers, electricians etc

f.        Sponsor training programs for teachers in government schools

g.       Organize personality development programs for children and youth

Other projects

a.       Construction of houses for needy

b.      Rehabilitation of drug addicts

c.       Sponsor old age homes for poor people

d.      Adopt villages

e.      Sponsor bus transports in interior villages

f.        Assistance to government on slum development

g.       Sponsoring ambulances, medical equipment, organ transplant

h.      Supporting the surgery cost of needy patients

i.         Establishing schools in remote area

j.        Sponsoring salaries of teachers in villages

k.       Organizing law awareness programs for public to empower them

l.         Construction of roads in the remote areas

m.    Establishing or sponsoring counselling centres

Views are personal                                                          Sibichen K Mathew