Decoding CSR: A Bane or a Boon for Business

​Corporate social responsibility (CSR) has become an integral part of the future of Indian business. Although the first official statement of CSR by the Government of India has appeared in the Companies Bill, 2012, even before this there have been many statements of intent and guidelines of varying nature by different agencies. But it is only now that concerned companies have initiated efforts to understand and implement CSR. The first reactions and opinions repeatedly gravitate around the question – Is mandatory CSR a bane or a boon for Indian companies? The discussion in this paper attempts to address this very fundamental question.  

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1. The Dimensions of Corporate Social Responsibility

On the basis of an extensive study of both international and national level literature on CSR it can be derived that the term primarily connotes one or more of the following three dimensions:

1. Internally, the welfare of the company’s human resources and use of raw materials that are not exploitative of human or natural resources
2. That the production process and primary and secondary product outputs do not take a toll on the physical environment. Business processes contribute to environmental sustainability.
3. The company is concerned about other stakeholders – the society to which its consumer base belongs, the local area communities where it operates and so on.

It may appear as if we are confining CSR to very limited terms with these three dimensions. But a careful examination of the various aspects that studies repeatedly bring up show that these are the three main underlying facets. Each of these is significant from the point of view of the overall development of our country and will be explored further in the forthcoming articles. However, for certain specific reasons the focus in the Companies Bill, and as we argue rightly so, is mostly on the third dimension. We look at the reasons for this below:
Firstly, looking after at least some of the welfare needs of all the employees is in any case the responsibility of the owner/employer.
Secondly, a lot of actions that may actually be a strategic investment for the business can be represented as employee and staff welfare. A classic example is the case of staff training which while benefiting the staff actually enhances the growth of the business and ultimately, the profits of the owner/promoter.
 Thirdly, different measures, scales and standards are now available to measure and reward steps taken for environmental preservation and sustainability. We have experts and organisations working full time on the area and for many years now there are systematic means to reward good conduct such as the case with ‘carbon credits’.
Fourthly, not causing any damage to the immediate environment may ultimately be in the business interests of a company and it may, therefore, require little motivation to do so. For instance, an agro-based business or production requiring large supplies of water may depend on the availability of these resources from their immediate environment and would not act in ways to negatively affect the supply of water.
It is the third dimension of CSR, that is, the concern for the immediate community and the larger society which still remains at a nascent stage. No immediate gains may be perceived for business by working for the welfare of the local community or larger society. Thus, in this respect it is also the dimension that is least attractive and amenable to acceptance by the business community. The present guideline of at least 2% of the average net profit may appear as a very large amount for the company especially for companies with very high profits. In simple terms, this does not make good business sense. This is the primary factor for the negative reactions to CSR on the part of companies. The reactions will be further intensified as CSR is made mandatory. Is CSR then a bane or in other words, a curse? We strongly disagree.

1. Indian Business Environment

Now let us look at some of the recent trends in the Indian business scenario.

1. India is an attractive destination for setting up new business.
2. Foreign institutional investors and individuals are investing in existing Indian businesses.
3. A number of Indian companies are earning large profits that have enabled them to buy large stakes in existing businesses in foreign countries or set up new business/facilities there.
4. A number of enterprises have been newly set up, have survived and even grown astonishingly well in recent years.
5. A number of larger companies have diversified into new areas such as retail, hospitality, financial services and airlines industry among others.

When these trends are taken into consideration, it indicates an overall supportive and encouraging environment for business in the country. Further, the motivation for large investments in Indian business even from other countries suggests that there is a scope here for earning large profits. It is quite remarkable that in sectors like retail, consumer goods, hospitality and even fashion India is viewed has having a large market.
The ‘large market’ is an outcome of two factors. Firstly, India has a large population and a high rate of population growth. Secondly, the sections of the population with the capacity to buy various goods and services, such as the middle class and the classes above it, are constantly increasing in numbers. Thus, any new investments made are based on the calculation that it will yield more returns than perhaps in any other country of the world. When the rich stand to gain so much from their business in the country it may not be wrong at all to expect them to reciprocate to the country through practices like CSR.
The Benefits for Companies Undertaking CSR
When CSR initiatives are taken in the area of education and awareness, the companies effectively contribute to the growth of the very middle class that serves as its consumer base. Further, many of these companies aim to expand their consumer base from urban to rural areas even in quite remote locations. Thus, in both these respects it makes good business sense to undertake CSR. Undertaking CSR initiatives will also earn goodwill from the company’s consumer base which will ultimately benefit the company.
Undertaking CSR builds a positive image of the company in the public benefiting it in its interaction with the government, investors and business partners. Therefore, in the long term business stands to gain in financial terms by undertaking CSR initiatives. There is no doubt either that the country as a whole and the needy and disadvantaged sections in particular will gain when companies get involved in social welfare and development. This is because companies are resourceful partners to have in terms of finances, knowledge base, technical knowhow and human resources. We would like to conclude by asserting that CSR would definitely be a win-win situation for both sides.