CORPORATE SOCIAL RESPONSIBLITY (UNIT-04) 4,1 Strategic Planning & Social Responsibility Business is part of society. Business depends upon society for Inputs like man money and skills (technology). Business has certain responsibility towards society Business comes in contact with various groups of society such as owners, workers, customers, government, suppliers, etc. It should fulfil its obligations towards each of these groups. Earlier, that business organisation was considered good which was earning huge profit for its owner but today, the situation has changed. Today, the responsibility of business is not limited to its owner alone, rather it has assumed large dimensions. Business has to look to the interests of many other interested groups. This responsibility of business, which includes satisfaction of these parties along with the owner, is called social responsibility of business. According to George A. Steiner, “In real sense, social responsibility implies recognition and understanding of the aspirations of society and determination to contribute towards their achievement.” According to H.R. Bowen, "Social responsibility is to pursue those policies and decisions or to follow those lines of actions which are desirable in terms of its objectives and values of our society.” According to Keith Davis, "Social responsibility of business implies that the businessman's decisions ‘and actions are taken for reasons at least partially beyond the firm's direct economic Interest.” Thus, social responsibility of business means responsibilities of business towards customers, workers, shareholders and the community. Social responsibility of business implies achieving business objectives in an environment of fairness, honesty and courtesy towards our clients, ‘employees, vendors and society at large. ‘Arguments in Favour of Sot Responsibility Responsibility/Need for Social Responsibility/Case for Soc Following are the main arguments in favour of social responsibility (1) Good Public Image: All businessmen must enhance their public image to secure more customers. To establish a good public image, the business will have to fulfil social responsibilities. Hence, better public image will attract customers. This will result in increased profits. (2) Avoidance of Government Interference: When businessmen voluntarily discharge social obligations, government intervention is avoided. For instance, if business takes care of water pollution, air pollution voluntarily, then government will not interfere in the activities of such business on the ground of environment protection. On the other hand, if business is spreading pollution, government will take action to close the business or to change its location. Moreover, such intervention of government will badly damage the image of such business in society. {3) Moral Justification: Every business uses capital, physical and human resources of the society. It also depends upon society for sale of goods and services. Further, business firms make use of 1[PageCA AMAN AGRAWAL common facilities provided by society like roads, railways, power supply, water supply, law and order, etc. Sot is moral responsibility of business to contribute to well-being of society. {4) To Avoid Class Conflicts: If business fulfils its social responsibility towards its employees like providing them good working conditions, housing, medical facilities, retirement benefits, etc., then it will improve morale of employees and they will not go for strikes. It will improve the productivity ‘of employees which in turn will benefit the organisation in terms of increased production, increased profits. (5) Consumer's Consciousness: Nowadays, consumers have become more conscious of their rights. They are aware of their legal rights. In big cities, consumers form their registered associations. If ‘any manufacturer cheats consumers by supplying inferior goods, then consumer associations take action against such business units. So to avoid conflicts with customers, business units should assume social responsibility and produce good quality products. (6) Business is a Part of Society: Since business organisations are part of society they must have a positive attitude towards the needs of society: Business is only a sub-system of society and this sub- system must contribute to the welfare of not only his organisation but also the welfare of other sub-systems (different parts of society like customers, shareholders, employee, etc.), so that the entire society or the complete system is benefitted. {7) Lang-term Interest of Business: The social responsibility of business, if taken care of in the present, ensures the success of the organisation in future. It is possible that in the beginning an organisation may have to bear the financial burden for meeting its social responsibility but the future of the organisation becomes secured. Thus, by fulfilling social responsibility, business is benefited in the long run. Difficulties/Limitations/Barriers/Arguments against Social Responsibility Business unit may face following difficulties in meeting the social responsibility: (1) Increase in Prices: Meeting social responsibility involves huge cost for example donations to educational institutions, donations to charitable institutions, providing relief to food camps, etc. This increased cost is passed on to the society in the form of increased prices. So it is the society that ultimately bears the cost of meeting social responsibility. (2) Lack of Skill to Solve Social Problems: Social problems an of very complex nature. Solving social problems requires specialised knowledge. A person may be very good in managing business problems, but he may not begood at solving social problems. (3) Meeting Social Responsibility Deviates from Main Objective: The main objective of any business unit is to earn more profit. Meeting social responsibility goes against this profit objective. The money spent on meeting social responsibility can be invested in business to earn more profit. Moreover, business is an economic institution and not a social welfare organisation. {4) Shortage of Time: Nowadays business has become very complex. It has to face many problems. It requires lot of time and efforts to solve business problems. Now, business does not merely mean buying and selling the goods. It involves many other activities, viz-advertising. launching sales promotion schemes, contacting media for publicity, conducting market research, paying taxes, [PageCAAMAN AGRAWAL making accounts, training employees, conducting meeting of shareholders, etc. So in such situation, the business managers have no time for solving social problems: (5) Regular Burden: Once a business starts meeting social responsibility then it becomes a regular burden on the business unit. The society expects the business unit to continue mee! social responsibility forever in future. Even if in some years, business unit faces financial difficulties, it cannot afford to discontinue meeting social responsibilities, as it will have negative effect on its image. {6) Opposition by Other Firms in the Same Industry: If any business unit spends some money on meeting social responsibility then it receives resistance from other business units in the same industry. The other business units think that they too will have to spend on meeting social responsibility in line with this business unit. So other firms of the same industry oppose social responsibility measures taken by any business unit. (7) Excessive Concentration of Power: Already business units have enough economic power. If business is given social power, then society will be too much dependent on business. With excessive powers, business units will try to influence society for their own good. Social Responsibility of Business towards Different Interested Groups Business is responsible towards various interested groups like: owners, employees, consumers, government, suppliers, and community. It should fulfil its obligations or responsibility towards each of these groups. (1) Responsibility towards Owners: If ownership and management of business are in different hands, then managers (directors) have the following responsibility towards owners, ie., shareholders: * Toensure safety of capital. + Toensure fair and reasonable return (dividend) on their capital. ‘+ Timely payment of dividend ‘+ Regular and accurate information about the working of company. + Totreat shareholders of same class equally. ‘+ To ensure proper utilisation of invested capital. (2) Responsibility towards Employees: Employees are integral part of business. If employees are satisfied, the business enterprise can achieve success in the long run. Business has following main responsibilities towards employees: ‘Giving them appropriate remuneration. Providing clean work atmosphere and good working conditions. ‘Respecting individual dignity. «Providing medical facilities, housing, canteen, leave and retirement benefits, etc. ‘Adopting incentive system of wage payment. ‘+ Giving them a share of profit as bonus. Giving security of service (job security). ‘Promoting workers' participation in management. 31 PageCA AMAN AGRAWAL (3) Responsibility towards Consumers: Consumers are the integral part of bu: Solving labour problems in time. Providing training to employees. Providing opportunity for promotion and development. ess Baines cannot exist without consumers. Following are the main responsibilities of business towards consumers: ‘To make available good quality goods at cheap rates. To avoid misleading advertisements and bring out reality it To avoid adulteration. To provide after-sale service and to handle customers complaints quickly and carefully. {V) To make goods according to the liking and tastes of consumers. To make goods available to the consumers at the nearest point. To ensure regular supply of goods and services. To avoid unfair trade practices like not to indulge in lowering competition by making cartels. {x) To discourage monopolistic tendencies. advertisement. {4) Responsibility towards Government: To ensure the progress of a country, government makes certain laws and decides tax structures. A manager should help the government in the development of the country by observing these laws. A manager has following responsibilities towards the government: (5) Responsit To pay tax honestly and not to indulge in tax evasion. To perform business in lawful manner and observe rules laid down by government. Not to exploit government machinery by unfair means, ie., not to bribe government employees. ity towards Suppliers: Business enterprise should develop and maintain healthy relations with suppliers. Dealings with suppliers should be based on fair terms and conditions, payment to suppliers should be made well in time. It will ensure regular and timely supply of raw materials and other items. Informing suppliers about future development plans. (6) Responsibility towards Community: Business is an integral part of society and the people of society have the following expectations from It: To make available opportunities for employment. To avoid polluting the environment and work for the improvement of local environment. To contribute to the raising of standard of living, To be a partner in social development by establishing charitable Institutions. Dispensaries, educational Institutions, ete. To provide high quality products to society. To preserve and promote social and cultural values. To take safety measures against possible health hazards and untoward In. Gas Leakage tragedy in which thousands of people were killed.) fence like Bhopal alPaceCA. AMAN AGRAWAL 4.2 Corporate Philanthropy Philanthropy means the act of donating money, goods, time or effort to support a charitable cause in regard to a defined objective. Philanthropy can be equated with benevolence and charity for the poor and needy. Philanthropy can be any selfless giving towards any kind of social need that is not served, underserved, or perceived as unserved or underserved. Philanthropy can be by an individual or by a corporate. Itis the active effort to promote human welfare. Corporate Social Responsibility on the other hand is about how a company aligns their values to social causes by including and collaborating with their investors, suppliers, employees, regulators and the society as a whole. The investment in CSR may be on people centric issues and/ or planet issues. A CSR initiative of a corporate is not a selfless act of giving; companies derive long-term benefits from the CSR initiatives and it is this enlightened self interest which is driving the CSR initiatives in companies. 4.3 Corporate Responsibility (CR) vs. Corporate Social Responsibility (CSR) Corporate responsibility refers to the duty and rational conduct expected of a corporation; accountability of a corporation to a code of ethics and to established laws. Corporate governance, ‘on the other hand, is defined as corporate initiative to assess and take responsibility for the company's effects on the environment and impact on social welfare. The term generally applies to company efforts that go beyond what may be required by regulators or environmental protection groups. It is a commonly asked question that “what is the difference between Corporate Responsibility (CR) and Corporate Social Responsibility (CSR)". There seem to be a notion that there is somehow a philosophical divide between the two-with CR being the more "strategic" of the two. In certain industries and countries, CR/CSR is described as Corporate Citizenship, Sustainability or similar labels. Each company has a reason for using these terms. They might resonate better with the company's internal stakeholders, or they might reference a certification standard or a customer Fequirement. Ultimately, however, the practices and outcomes should be the same, regardless of the label. A responsible business is a sustainable business and vice versa. A company that acts as a good corporate citizen takes responsibility for its people, community and the natural environment in the short, medium and long term. The main difference between Corporate Social Responsibility (CSR) and Corporate Responsibility (CR) is: Firstly, itis obvious that both techniques are always linked to the values that the company wants to share with all publics. Both CSR and CR draw the essence and philosophy of the organization and are candidates to be the bull's-eye of many communication and public relations campaigns due to their powerful brand building inherent characteristics. However, depending on the strength and presence of CR inside the company, it would be possible to infer if we are talking about CSR or Socially Responsible Business Practices. Consequently, if the corporate responsibility is In the top management level and it is considered an important pillar for the brand and the company, as well as, its presence is all over the campaigns and marketing actions that are developed, we would be talking about CSR. In the other hand, CR would refer to behaving respectfully with the environment and the society, without bringing any additional "good", neither doing any "bad". S|PageCAAMAN AGRAWAL 4.4 Corporate Social Responsibility (CSR) and Corporate Sustainability (CS) Corporate sustainability is a business approach that creates long-term consumer and employee value by creating a "green" strategy. It aims towards the natural environment. It also incorporates the every dimension of a business, be it social, cultural, or economic environment. Corporate sustainability formulates strategies to build a company that fosters longevity through transparency and proper employee development. Different definitions of corporate social responsibility (CSR) and corporate sustainability (CS) have been used over time to reveal points of difference and congruence between the two terms. Sustainability may only be one aspect of CSR, with other aspects centred on ethics, for example, employee relations, and/or mission-driven goals. CSR is often used, as more of an umbrella term ‘that highlights all that a company does that is "good". One term is not necessarily better than the other, and there is often confusion over how CSR actually differs from sustainability. ‘Though these two terms seem similar and are used interchangeably, yet there are some differences between them. Some important differences are as follows: 1, CSR looks backward, generally considers on what a business has done, whereas, CS looks forward, and generally considers planning the changes a business might make to secure its future. 2. CSR tends to target opinion formers-politicians, pressure groups, media, etc. On the other hand, CS targets the whole value chain from suppliers to operations to partners to consumers. 3. CSRis about compliance, whereas, CS is about business. 4, CSR gets managed by communications teams, whereas, CS is managed by operations and marketing. 5. CSRis driven by the need to protect reputations in developed markets, whereas, CS is driven by the need to create opportunities in emerging markets. 4.5 CSR and Business Ethics The concepts of business ethics and social responsibility are often used interchangeably, although each has a distinct meaning. The term business ethics represents a combination of two very familiar words, namely "business" and “ethics”. The word business is usually used to mean any organisation whose objective is to provide goods or services for profit. The word ethics comes from the Greek word ethos meaning "character or custom". Ethics has been defined in a variety of ways, inter alia, as: "the study of morality": "inquiry into the nature and grounds of morality where the term morality is taken to mean moral judgments, standards and rules of conduct". Based on these concepts, the definition of business ethics adopted here comprises “the moral principles and standards that guide behaviour in the world of business, whereas, corporate social responsibility refers to the corporate initiative to assess and take responsibility for the company's effects on the environment and impact on social welfare. The term generally applies to company efforts that go beyond what may be required by regulators or environmental protection groups. 6 [PageCA AMAN AGRAWAL 4.6 CSR and Corporate Governance Corporate governance refers to the moral or ethical or value framework under which corporate decisions ant taken. It includes the relationship of a company to its all stakeholders. It is @ mechanism to protect outsiders and ensure an effective working of the firm. On the other hand, corporate so responsibility (CSR, is a form of corporate self-regulation integrated into a business model. CSR policy functions as a self-regulatory mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards and international norms. Corporate governance is basically concerned with specific norms and laws of business decision making that apply to the internal mechanisms of companies. This set of norms and laws has, first and foremost, served to shape the relations among the various stakeholders of the company. However, after the Enron scandal, corporate governance has emphasised issues that go beyond this traditional focus to touch on corporate governance. Now companies seek honest and fair corporate governance principles on a wide spectrum of business practices. Simultaneously, the corporate social responsibility (CSR) movement has developed the notion of corporate governance as a vehicle for pushing management to consider broader ethical considerations. CSR seeks to make corporations more responsive to public, environmental, and social needs by pursuing corporate governance as a framework for boards and managers to treat employees, consumers, and communities similar to stockholders. Such mechanisms include CSR board committees, company units dealing with business ethics, corporate codes of conduct,non-financial reporting practices, and stakeholder complaint and dialogue channels, among others. ‘The companies that are doing more CSR practices, they are also good in corporate governance like Tata, and Infosys etc. 4,7 Environmental Aspect of CSR ‘The environmental aspect of CSR is defined as the duty to cover the environmental implications of: the company's operations, products and facilities, eliminate waste and emissions, maximise the efficiency and productivity of its resources; and minimize practices that might adversely affect the enjoyment of the country’s resources by future generations. In the emerging global economy, where the Internet, the news media and the information revolution shine light on business practices around the world, companies are more frequently judged on the basis of their environmental stewardship. Environmental Management To truly commit to its environmental responsibilities a company should change its traditional modes operation towards a more environmentally oriented one, The environmentally more responsible perspective could include the following: (2) Corporate Environmental Policy: Corporate environmental policy reflects company's commitment to sustainable business practices which include: compliance with environmental regulations, advancement of environmental awareness, minimisation of environmental risks, reduction of emissions and waste and conservation of energy and water consumption. Companies should create a set of environmental principles and standards. 7[ PaceCAAMAN AGRAWAL (2) Environmental Audit: An environmental audit assesses the nature and extent of harm, or risk of harm, to the environment posed by an industrial process or activity, waste, substance or noise. It is about understanding the type of pollution and the harm it poses. Management should understand the type and amount of resources used by the company, product line or facility, and the types of waste and emissions generated. Organisations of all kinds now recognise the importance of environmental matters and accept that their environmental performance will be scrutinised by a wide range of interested parties. (3) Employee Involvement: Corporations should create incentives, rewards and recognition programmes for employees who demonstrate their environmental commitment. (4) Green Procurement: Green Procurement means purchasing products and services that cause minimal adverse environmental impacts. It incorporates human health and environmental concerns into the search for high quality products and services at competitive prices. Green products purchased should be those that are made with less harmful materials or which when produced or used or consumed would have a minimal impact on the environment. This includes buying local and reducing carbon footprint. (5) Green Funding: Green funding refers to a mutual fund or other investment vehicle that will only invest in companies that are deemed socially conscious in their business dealings or directly promote environmental responsibility. Based on performance, it is not yet clear whether green funds and socially responsible investing can consistently create better returns for investors, but they do represent a proactive step toward environmental consciousness, which many investors see as valuable. (6) Sustainable packaging: Sustainable packaging is a relatively new addition to the environmental considerations for CSR. Companies using environment-friendly packaging materials are reducing their carbon footprint, using more recycled materials and minimising waste generation. Companies that highlight their environmental initiatives to consumers can increase sales as well as boost product reputation. (7) Clean Energy: Deployment of renewable energy systems can make a big impact on CSR activities of companies as clean energy is one of the best methods to mitigate climate changes. Decentralised power generation using renewable resources is rapidly gaining popularity among world's top companies. (8) Environmental Reporting: Environmental reporting is also getting prominence in the context of corporate social responsibility. Environmental information like greenhouse gas emissions, waste generation, enerey consumption, use of transport can improve the transparency of industrial activities, thereby, providing a powerful tool to fight environmental degradation. Business can save significant in areas like use of raw materials and supplies, reduction in waste, water, energy use, transport, travel and packaging. 4.8 CSR Provisions under the Companies Act, 2013 ‘The Companies Act, 2013 has introduced several new provisions which change the face of Indian corporate business, One of such new provisions is Corporate Social Responsibility (CSR). Ministry of Corporate Affairs has recently notified Section 135 and Schedule VII of the Companies Act as well as B[PageCAAMAN AGRAWAL the provisions of the Companies (Corporate Social Responsibility Policy) Rules, 2014 (CSR Rules) which has come into effect from 1 April 2014. Important provisions of the Companies Act, 2013 regarding corporate social responsibility are as follows: 1. Applicability: Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director. This provision is likely to bring in many SMEs into the CSR fold. This will usher in a fresh set of challenges to a sector that is increasingly being asked by its 82B customers to comply with environmental and social standards, while remaining competitive in terms of price and quality. Thus, SMEs will have to quickly learn to be compliant with these diverse set of requirements and it is hoped that this handbook will facilitate their ability to comply with the CSR clause of the Companies Act, 2013. 2. CSR Committee and Policy: The Act encourages companies to spend at least 2% of their average net profit in the previous three years on CSR activities. Net profit is the profit before tax as per the books of accounts, excluding profits arising from branches outside India. Further, The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee. The Committee shall: {a) Formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VIl; (b) Recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and (c) Monitor the Corporate Social Responsibility Policy of the company from time to time. 3. Responsibility of Board of Directors and Reporting: The new Act requires that the board of the company shall, after taking into account the recommendations made by the CSR committee, approve the CSR policy for the company and disclose its contents in their report and also publish the details on the company's official website, if any, in such manner as may be prescribed. If the ‘company fails to spend the prescribed amount, the board, in its report, shall specify the reasons. 4, Activities to be Undertaken under CSR: The activities that can be undertaken by a company to fulfil its CSR obligations include eradicating hunger, poverty and malnutrition, promoting preventive healthcare, promoting education and promoting gender equality, setting up homes for women, orphans and the senior citizens, measures for reducing inequalities faced by socially and economically backward groups, ensuring environmental sustainability and ecological balance, animal welfare, protection of national heritage and art and culture, measures for the benefit of armed forces veterans, war widows and their dependents, training to promote rural, nationally recognized, Paralympics or Olympic sports, contribution to the prime minister's national relief fund or any other fund set up by the Central Government for socio economic development and relief and welfare of SC, ST, OBCS, minorities and women, contributions or funds provided to technology incubators located within academic institutions approved by the Central Government and rural development projects. 91PageCAAMAN AGRAWAL However, in determining CSR activities to be undertaken, preference would need to be given to local areas and the areas around where the company operates Surplus arising out of CSR activities will have to be reinvested into CSR initiatives, and this will be over and above the 2% figure. Business Social Performance Social performance is defined as “the effective translation of an institution's mission into practice in line with accepted social values.” Business social performance is the stakeholders’ assessment of the CSR and corporate citizenship over time in comparison to competition. It is defined as a construct that emphasises a company's responsibilities to multiple stakeholders, such as employees and the community at large. ‘Although, business social performance is by all means an important consideration, the actual measurement of corporate social performance remains a complex task. Unlike corporate economic performance, there has been long debate on constructs and outcome of corporate social performance. Basically, there three dimensions of business social performance: 1. Social Policies, 2. Social Programmes, and 3. Social Impacts. 1. Social Policies: Concern for social causes shapes and structures the explicit corporate social policies stating the company’s core values, beliefs, and objectives with regard to its social concern. 2, Social Programmes: Social policies are implemented through social programmes of activities, measures, and methods. 3. Social Impacts: It is difficult to evaluate the impact of social programmes on society because the impact may be a combined effect of various factors. Nevertheless, some impacts on the society can reasonably be welll assessed. For example, the impact of social policies and programmes aimed at strengthening improving environment can be evaluated with pollution data 4.9 CSR Committees On April 1, 2014, India became the first country to legally mandate corporate social responsibility. The rules in Section 135 of India's Companies Act make it mandatory for companies of a certain types and profitability to spend 2% of their average net profit for the past three years on CSR. For proper implementation of CSR plan, companies in India are required to form a committee known as "CSR Committee". A CSR Committee means the Corporate Social Responsibility Committee constituted by the Board of the Company in accordance with the Act. Once a company is covered under the ambit of the CSR, it is required to comply with the provisions of the CSR. The companies covered under Sub Section 1 of Section 135 are required to do the following activities. {a) Constitute a CSR Committee (b) Formulate a CSR Policy (c) Spend at least 2% of the average net profits of last 3 years on CSR activities (d) Disclose the composition of CSR committee and CSR policy and its implementation in Board's report. 10|Page‘CA AMAN AGRAWAL Applicability Every company having Net worth of 500 crores or more or Turnover of 1000 crores or more or Net profit of S crores or more, During immediately preceding financial year shall constitute a separate CSR committee. However where the amount to be spent for CSR activities does not exceed 50 lakhs, there is no requirement for constitution of CSR committee, function of such committee can be done by the board of the ‘company. Constitution of CSR Committee ‘The composition of the CSR committee varies based on the type of company ‘Type of Company Composition a) listed Three or more Directors including at least one Independent Director b) Unlisted and Private Three or more Directors, an Independent Director is mandatory ¢) Private Two Directors d) Foreign At least two persons, one of which must be company's representative in india Clause 135 of the Act lays down the guidelines to be followed by companies while developing the CSR programmes. The CSR committee remains responsible for preparing a detailed plan on CSR activities including the expenditure, the type of acti ies, roles and responsibilities of various stakeholders and monitoring mechanism for such activities. Functions of CSR Committee Formulation and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the projects/activities to be undertaken by the Company in areas or subject, as specified in Schedule Vi, Reviewing with the CSR management, the quarterly financial statements before submission to the Board for approval. Recommend the amount of expenditure to be incurred on CSR projects/activities undertaken, To constitute Management Committee for implementation and execution of CSR Initiatives/activities, Shall institute a transparent monitoring mechanism for implementation of CSR projects/activities undertaken by the company. Reviewing performance of the Company in the areas of CSR. ‘Submit an annual report of CSR projects/activities to the board. Monitoring CSR Policy from time to time. 111 PageCAAMAN AGRAWAL Role of the Board and CSR Committee ‘The role of the Board in Corporate Social Responsibility is: ‘+ Approve the CSR Policy of the company after considering the recommend: committee; ‘+ To disclose the contents of such a policy in its report and to place it on the company’s website, if prescribed; ‘* To ensure that the company spends, in every financial year, at least 2% of the average net profits made during the three immediately preceding financial years, in pursuance, of i CSR Policy; '* The Board shall specify in its report the reasons for not spending the amount if the company fails to spend such amount ns given by the List of Responsibilities of the CSR Committee '* As provided under Section 135(1), companies are required ta constitute a Corporate Social Responsibility Committee of the Board "hereinafter CSR Committee”. The CSR Committee shall comprise of three or more directors, out of which at least one director shall be an independent director. ‘+ All such companies should formulate CSR Policy. ‘+ All such companies shall spend, in every financial year, at least two percent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. It has been clarified that the average net profits shall be calculated in accordance with the provisions of Section 198 of the Companies Act, 2013. Also, provisions to the Rule 3(1) of the CSR Rules that the net worth, turnover or net profit of a foreign company of the Act shall be computed in accordance with the balance sheet and profit and loss account of such company prepared in accordance with the provisions of clause (a) of sub-section (1) of section 381 and section 198 of the Companies Act, 2013. ‘+ The Board's report shall disclose the compositions of the CSR Committee. 12|Page