Mandatory CSR – Can It Help Indian Firms?

Abstract

Industry and Business play a crucial role in the social and economic development of a nation. It is a creative entrepreneurial process that provides livelihoods for the majority of the world’s people. It has been instrumental in bringing about sustainable development. CSR is an increasingly important part of the business environment and constitutes a complex aspect of the relationship between business and society. It is not just about building schools or providing scholarships, but about doing business that companies do not regard as being an obligation ensuring sustainability of business. It is an extension of efforts to foster strong corporate governance. It is a multi dimensional concept evolved over the years from Corporate Philanthropy to Stakeholder management and Sustainable development. CSR brings positive change inside businesses. It sets the framework and defines the manner in which a business must operate to be able to meet the ethical, legal, commercial and public expectations that a society has of any company. Corporations are now involved in all aspects of public and private life and Corporate Social Responsibility (CSR) has been propelled into the limelight in recent years due to increasing influence and power of corporations. CSR extends beyond the interests of shareholders to the interests and needs of diverse stakeholders. It includes environmental, social, and governance issues’. Law is the codification of basic human values. The goal of CSR is to implement these values in corporations, thus CSR develops and functions in a legal framework that is feasible and has the support of all the stakeholders concerned. Codification helps in defining the purpose and gives clarity. Further it ensures consistency and credibility. There need to be laws, of course, and regulations to force compliance. Compulsory laws and regulations tend to be rigid for controlling self-interest. The very nature of right and power, obligation and responsibility implies that social obligation is inherent in almost every legal right, legal power or actual power. Thus best model for CSR is voluntary compliance with sensible social codes. Social responsibility needs to take care of the changes and hence companies need to have choice. CSR require long-term perspective to have any major beneficial impact in society. The perception of the public concerning business is important. Governments need to take the initiative of bringing all the segments in society to discuss CSR to ensure minimum legal standards as well. CSR could exist at three levels: Compliance in letter of the law; Observing norms of common morality, like ethics and fair play, in its internal management and dealings; and A social trusteeship mindset in deploying its resources for sustainable development. The main focus of CSR should continue to be a voluntary one while the role of Government needs to be that of a facilitator. They may set the appropriate policy framework with the right mix of tools including fiscal and regulatory measures where appropriate to boost socially and environmentally responsible performance. Regulations need to be well designed and focused if it is the right solution. But CSR should continue to take compliance with legal requirements as the base and go beyond that in the interests of business and the rest of society. Above and beyond this understanding, business firms should move toward a spirit of trust at all times but more in matters that are integral to the existence of the firm such as data privacy. Finally it is also essential to have proper measurement systems to track, control and implement CSR initiatives that are both sustainable as well as beneficial to all stakeholders. This is the first part of the research on the legal aspects of CSR in India before it became mandatory in 2013. The second part will discuss the post 2013 scenario of mandatory CSR.