CHAPTER –VI

CORPORATE SOCIAL RESPONSIBILITY

TOWARDS BETTERMENT OF SOCIETY
 CHAPTER-VI

CORPORATE SOCIAL RESPONSIBILITY TOWARDS

BETTERMENT OF SOCIETY

6.1 Introduction

Corporate social responsibility refers to strategies corporations or firms conduct

their business in a way that is ethical, society friendly and beneficial to community in

terms of development. The present-day Corporate Social Responsibility (also called

corporate responsibility, corporate citizenship, responsible business and corporate social

opportunity) is a concept whereby business organizations consider the interest of society

by taking responsibility for the impact of their activities on customers, suppliers,

employees, shareholders, communities and other stakeholders as well as their

environment.1 This obligation shows that the organizations have to comply with

legislation and voluntarily take initiatives to improve the well-being of their employees

and their families as well as for the local community and society at large. Corporate

Social Responsibility simply refers to strategies corporations or firms conduct their

business in a way that is ethical and society friendly. CSR can involve a range of

activities such as working in partnership with local communities, socially sensitive

investment, developing relationships with employees, customers and their families and

involving in activities for environmental conservation and sustainability.2

Corporate social responsibility (CSR), also known as sustainable responsible

business (SRB), or corporate social performance, is a form of corporate self-regulation

integrated into a business model. Ideally, CSR policy would function as a built-in, self-
1
Maimunah Ismail. “Corporate Social Responsibility and its Role in Community Development. An
International Perspective”. Journal of International Social Research. Vol 2/9, 2009. p 199.
2
Pitabas Pradhan, Subhas Parida and Babani Rath. “Corporate Social Responsibility in the Globalised
Business Environment”. The Indian Journal of Social Work, Vol 66, issue 2, April 2005, p 211.
 218

regulating mechanism whereby business would monitor and ensure their adherence to

law, ethical standards, and international norms. Business would embrace responsibility

for the impact of their activities on the environment, consumers, employees,

communities, stockholders and all other members of the public sphere Corporate Social

Responsibility is a very well known concept in the present day world. In fact the

corporate giants are very conversant with corporate social responsibility or corporate

sustainability –in today's parlance.3 The responsibility they have towards the society and

the community as a whole cannot be denied. A tremendous surge and then a sustained

consistency in the progress of the concept of CSR has been witnessed over a span of quite

a number of years, elevating it to the highest pedestal of importance in all aspects of

4
business and production, be it private or public. In the modern times the concept

corporate social responsibility incorporates and strives to explain and clarify numerous co

related and uncorrelated issues peculiarly, particularly or especially pertinent to social

and environmental interests and welfare, keeping in full view the financial interests and

benefits of the shareholders. Responsibility has more or less taken the shape of

accountability and obligation. Business ethics has also been brought into the arena

of corporate social responsibility. In fact an ethical business performance acts as a

positive catalyst in hastening the process of corporate success via motivating the

employees and the underlying system. Corporate Social Responsibility (CSR) is a

commitment to improve community well-being through discretionary business practices

and contributions of corporate resources. However it is not charity but it is a core

business strategy of an organization. It is not a common term, in fact many Indian

3
Id, p 213.
4
Supra. note, 1, p 1-2.
 219

companies talked about responsible business or triple P (People, Planet and Profit).Some

others of corporate citizenship or stewardship, responsible entrepreneurship and triple

bottom line. Responsible competitiveness is nothing other than CSR.5

6.2 Development of a Rationale for Corporate Social Responsibility

CSR goes by many names, which include: corporate citizenship, corporate

philanthropy, corporate giving, corporate community involvement, community relations,

community affairs, community development, corporate responsibility, global citizenship,

and corporate societal marketing. It makes no difference what this social commitment of

companies is called. It is a new way of doing business to cater to the needs of the market

and its stakeholders.6 Social responsibility is the responsibility of an organization for the

impacts of its decisions and activities on society and the environment, through

transparent and ethical behavior that is consistent with sustainable development and the

welfare of the society, take into account the expectations of stakeholders, and in

compliance with applicable law and consistent with international norms of behavior and

is integrated throughout the organization.7 CSR is the way in which an organization

strikes a balance between economic, social and environmental imperatives on the one

hand and the expectations and welfare of the shareholders on the other. This implies that

social responsibility or rather its execution involves a well planned strategy. Assessment

of the social environment, formulation of objectives, devising operational plans and

programmes, monitoring social progress, assessment of social and economic impact and

summary of outcomes and performances are of utmost importance. In other words CSR

implies that the profits of corporate houses should be diverted to socially responsible

5
Id, p 3.
6
Saheli Chakraborthy, “Corporate Social Responsibility.” 2010, p.1.
7
ISO 26000,Sydney. February-2007.
 220

activities for the benefit of the society. Companies can exert an emphatic influence over

the quality and credibility of its products in the market through its CSR activities, which

has a great impact on society and also provides better synergy returns to their business. In

fact CSR is the impact of organizational activity on society. CSR is becoming an

increasingly important activity to businesses nationally and internationally. As

globalization accelerates and large corporations serve as global providers, these

corporations have progressively recognized the benefits of providing CSR programs in

their various locations. CSR activities are now being undertaken throughout the globe.

The rationale for CSR has been articulated in number of ways. In essence it is about

building sustainable businesses, which need healthy economies, markets and

communities, which again necessitate all business houses whether private or public to

carry out CSR activities. The government has declared it compulsory for industries to be

socially responsible. They cannot ignore the society while carrying out production and

amassing profit.8 A vibrant association or a high degree of correlation can be revealed

between CSR and good public governance. Earlier this was neither specified nor

executed, as the industrial policy resolutions failed to point out the real role of industries

in society. In fact the real costs that the society incurs are primarily due to the presence

and operation of the industrial houses. Public sector units may have to shell out 2-5% of

profit in CSR. CSR for a PSU may no more be a photo opportunity for its chairman but

would involve people-centric projects to be funded by 2-5% of the company's net profit.

J.R.D TATA, the founder of TATA STEEL, stated, ‘every company has a special

continuing responsibility towards the people of the area in which it is located and in

8
.B.Wenther Williams, Chandler David-“ Strategic Corporate Social Responsibility: Stakeholders In A
Global Environment” p.1
 221

which its employees and their families live.'9 The aspect of social responsibility of a

company is mainly concerned with the role of the company in addressing issues of

societal benefit and of reduction in social costs. There have been different instances

where businesses originate in social awareness and welfare. Corporate Social

Responsibility is a growing movement and to sustain it, it is necessary to improve and

promote the interest in investment and the competence of both the society in general and

of the governments in the individual countries to adjust to the CSR programme. As for

example the Grameen Bank which started by providing loans to the low income groups

has now been able to provide financial returns which are reasonable in nature and helped

improve lives of many people. The Grameen Bank and Grameen Foundation USA

(GFUSA) have coordinated with big companies or corporate houses to expand their

activities. Always there is interdependence between the society and the organization in

question or rather a cycle of relationship exists between the two in which the society

supports and sustains the organization while the latter is totally committed to the

sustenance and development of the former10. A one sided picture distorts the entire

concept of CSR- which is conceptually a one way process of social accountability. One

must not forget that a flow in one direction cannot last long until and unless backed by

other reciprocating flows. This implies that the role played by society is not a passive one

or a neutral one. The growing responsibility of the society and the community in general

cannot be denied at all. The awareness level of the society, which in turn is correlated

with the literacy level, the standard of living, the preference pattern is a major

determinant in this area- which helps individuals to voice their demands and grievances

Blake .D.H. ,”The Management Of Corporate Social Policy”, p.1.

9
10
Chris C Ganotis,” Managerial Attitudes towards Corporate Social Responsibility”, Paper presented at
University of California. at Berkley (Nov 9-11, 1972).
 222

in a systematic manner ensuring that organizations in that locality practice CSR in a way
11
that truly benefits society. The aim of every organization is to produce and distribute

goods and services in such a way that income exceeds cost. Society expects the

organization to be socially responsible as the economic environment of the society is

dependent on the business environment. Socially responsible business is a common term

today as business and societies are unthinkable without each other.

Cisco takes an entrepreneurial or venture-capital approach to social investing.

They address important social issues through multiyear initiatives that can have an

immediate impact, but that also can scale in size and scope, be replicated in other

environments, and support a mechanism for achieving sustainability over time. These

initiatives generally take the form of public-private partnerships that respond to a broad

range of stakeholder perspectives and make the most of Cisco's core competencies,

including their technologies, expertise, and collaborative approach. They apply a four-

stage "Cycle of Innovation" model to each of their social investments, remaining engaged

through some or all of these cycles:12

1. Identify innovative opportunities that address issues in their areas of focus.

2. Develop a framework for action, then test or pilot a solution and assess the

results.

3. Scale the successful implementation and replicate it to fit similar situations.

4. Operate and maintain the initiative to the point where it can sustain itself, then

adjust our engagement and look for another promising opportunity.

11
Id p 4
12
Supra note 10, p 5.
 223

They believe that in the long run, education provides the strongest foundation for

lasting social and economic progress. By applying effective 21st century educational

techniques in schools and other institutions, communities worldwide can prepare students

to enter the local talent pool and provide the skills needed to bolster economic growth.

Cisco's education initiatives, including what may be the largest e-learning program in the

world, help fill our own talent pipeline and those of our business partners, while also

helping to close the technical skills gap that exists in many areas of the world. But

beyond that, Cisco's many education-oriented engagements create trusted relationships

and seed the workforces of many types of organizations with knowledgeable people who

are capable of building and maintaining the infrastructures upon which societies

everywhere depend. In this way, we are contributing to a sustainable economic

environment that will reward our corporate stakeholders and our fellow citizens alike.13

With the introduction of Global Compact the concept of Corporate Social

Responsibility has been reinforced. The modern corporation has grown phenomenally

impacting various constituencies of civil society. The social obligations of the

corporation were highlighted as a strong reaction to certain practices of business which

undermine human rights, healthcare, labour standards, environments, poverty and

minimum education among others. One of the developments has been creation of

voluntary organizations, which serve the underprivileged sections of civil society

(NGOs). The campaign of CSR has been actively supported by multilateral agencies like

the Word Bank, OECD, and The European Commission, among others. In the present

times CSR roles and responsibilities of large corporations have been explicitly identified

13
Id, p. 6.
 224

and evolved worldwide14. In order to minimize the incidence of corporate governance

problems, guidelines and codes based on country experiences are being adopted both by

the developed and developing countries. In fact even before a worldwide debate started

some large companies and multinationals all over the world were already engaged in

corporate philanthropy. However, as the community and stakeholders expectations

became more and more diverse, it became necessary to mandate the corporation to

respond to these requirements. A certain legal sanctity was assigned to the emerging

framework of ethical and social conduct by the corporation by way of newer legislations

by different governments.15

While in the western world in the universities and management schools there has

been a practice of a minimum curriculum on Ethics and CSR, in the developing countries

like India we don’t find much evidence of such practices. Since the process of

liberalization commenced in India, the economy was exposed to changing market

structures and fierce competition. Economic reforms increase pressures of performance

of business and industries. In the Indian situation, while there has been some national

debate on Ethics, not much has been debated on various aspects of CSR. It is only

recently that the NGOs, the MNCs, the Multilateral Agencies, and also the Chambers of

Commerce have started documentation of best practices. In this context the CII- UNDP-

AICTE, under the aegis of the CII-UNDP India Partnership Forum (IPF) - emphasized

the need for documenting the current experience of industries in adopting CSR.16 It was

also realized that the educational system especially, the business school should take a

14
C.V.Baxi, Nazy Chadha, “Corporate Social Responsibility: Concepts, Practices and Country
Experiences”, p 3
15
Id, p. 6.
16
Pitabas Pradhan, Subhas C. Paridha and Babani P.Rath, “Corporate Social Responsibility in the
Globalised Business Environment”, p 211.
 225

lead role in promoting CSR practices. The notion held by many corporate executives in

the earlier decades of the twentieth century that ‘the business of business is business’ has

changed substantially. They have realized that earning more and more profit alone is not

sufficient for business survival- they have some responsibility towards society and the

communities in which they operate. As such, corporate social responsibility is viewed not

as an expense but as an investment that results in long-term profit. For an organization,

the community it operates in is very important as it supplies a major part of the

organization’s work force, raw materials, and provides an environment to prosper or

perish. Community relations programmes are an outcome of the realization that

organizations cannot survive in an island of affluence surrounded by a community,

deprived of the minimum facilities of civilized life. There are varieties of ways in which

an organization can involve itself in community relations and in betterment of community

life.17

There is a paradigm shift in the ways business houses work. They disclose today

as they have never before. This is partly due to legal requirements and partly due to the

growing realization of the obligation to disclose more to stakeholders. Socially

responsible companies are looking up to the ‘human touch’ in whatever they do.

Progressive companies today present triple bottom lines- financial, environmental and

social. Corporates are today under greater scrutiny, especially in their use of natural

resources and handling of human resources. The CSR process lies in identifying the key

stakeholders, their needs and requirements and initiating steps to fulfill them. The

business- society relationship is not new per se. It is only being rediscovered in a more

contemporary format. Our great scriptures and thinkers had millennia ago waxed
17
Id, p. 212.
 226

eloquent about CSR practices, including in the Vishnusahasarnama (Vyavasayo

vyayasthanah, samstahnah sthanadhodhruvah, parardih paramastastah tushtah pushtah

subhekshanah).Even as recently as in the nascent stages of independence, Gandhiji had

called upon business houses to consider themselves as trustees of the society’s wealth. It

needs to dawn upon the business that an island of prosperity cannot sustain in an ocean of

poverty.18

The perception of a corporation as an artificial person is an age old one and is

now replaced by a duality in terms of its nature. It is not only an economic legal entity; it

is also a social entity. Moreover, statistically, the booming businesses are demonstrating

that this social responsibility that it has cast upon its shoulders voluntarily is not merely

out of altruistic practices but, in the age of globalization and ethical consumerism, it is

bringing back good in many folds to the business. Another root in this growth of this

concept that more and more corporations are adopting in their ways of functioning may

be that the social problems that it intends on solving or attempting to solve were partly or

wholly caused by them.19 CSR is most popularly understood on the basis of the

shareholder’s theory of corporation. This view suggests that corporations have no specific

social responsibilities beyond profit- maximizing for the benefit of share-holders, but that

such profit maximizing must occur within the confines of law, without deception or

collusion. According to this view, corporations meet their proper social responsibilities

by excelling in their economic activities, which then contributes to a well-functioning

economy by employing people, by providing needed goods and services, and by

18
Sudeendhra Putty.,” Corporate Governance, Corporate Social Responsibility”. SEBI & Corporate Laws
Vol 56, p 14-16.
19
H. Gordan Fitch, “Achieving Corporate Social Responsibility”, (vol.1) No.1, The Academy of
Management Review, p 38.
 227

contributing to social welfare through paying taxes.20 This model is called the Hansmann

and Kraakman model21 which finds its foundation in the premise that corporate

accountability under corporate law only to shareholders.

Corporate Social Responsibility calls forth management to another role, that of

good citizen. And as the role of corporate fiduciary is primarily characterized by the

generalized duties of loyalty, good faith, and due care, the role of corporate good citizen

is marked by the generalized duty of socially responsible action.22 A corporation has

three groups which have interests in its activities. The first group is of the shareholders

who are investing in the same in order to get a return on their investments to the

maximum possible benefit. The second group comprises the people involved in running

the corporation. The third group consists of the consumers and the general public at large.

This is the group which is usually neglected without compromising on the focus on

consumerism which is streamlined to serve the interest of the first group and no further.

The responsibility can be in terms of the loss that corporations cause in terms of negative

social and environmental conditions in furtherance of economic pursuits. This loss is

caused to the third group specified, that is the consumers and general public at large.

Academics have sought to evaluate the conditions under which decisions presumed to be

shareholder wealth maximizing have had negative effects on employees, consumers,

communities, or on the environment.23 The various conflicting interest of groups may be

resolved by management acting as a facilitator. This implies that the management is not

20
Cynthia A Williams, “Corporate Social Responsibility in an Era of Economic Globalisation”, 35
UCDLR, 705.
21
Henry Hansmann and Reinier Kraakman, “The End of History for Corporate Law”, 89, Geo. L.J.439
(2001). p.89.
22
Jeffrey Nesteruk,” Corporations, Shareholders, And Moral Choice: A New Perspective on Corporate
Social Responsibility” 58, UCINLR 451.
23
Supra note 21, p 90.
 228

only the agent of the shareholders but also of the society as a whole by acknowledging

and adopting CSR. This may be used to offset or moderate the distortive markets caused

by profit generation motivated shareholders

The European Commission has since presented Corporate Social Responsibility

as ‘a concept whereby companies integrate social and environmental concerns in their

business operations and in their interaction with their stakeholders on a voluntary basis.24

6.3 Three approaches to implement the policy of CSR

a) National level: Though there are various laws relating to safeguard of the

environment and labor law, the implementation of the same in India are least

lackadaisical. These are also the minimum safeguards given to protect

violations of the social and environmental nature by the corporations. They do

not enhance the already deteriorated or dilapidated conditions of the same.

b) International agreements: To overcome the limitations posed by national

regulations, many countries have adopted international agreements relating to

labor practices and environmental standards that transcend national

boundaries. Examples of such international agreements include the UN Global

Compact, ILO International Labor Standards, and OECD Guidelines for

Multinational Enterprises, International Covenant on Economic, Social, and

Cultural Rights, and International Covenant on Civil and political Rights.25

c) Private initiatives: In the absence of any regime governing Corporate Social

Responsibility in the national as well as the international arena, private

24
European Parliament, Committee on Employment and Social Affairs, “Report on the communication
from the Commission concerning Corporate Social Responsibility”. 29 Comp. Lab. L & Policy, 459.
25
Krishna K Herrmann, “Corporate Social Responsibility and Sustainable Development”: The European
Union Initiative as a case study, 11 Ind. J. Global Legal Stud. 205.
 229

initiatives is the most relevant approach to make this much needed concept a

reality.26

A possible solution to this would be to establish a CSR regime governing wherein

this responsibility no longer remained a moral or a social one, but one with legal

implications. However this cannot be achieved by a nation solely. It needs to be backed

by international agreements involving large number of countries such that global playing

field is not negatively harmed in terms of competition. Underlying costs of adopting

practices of CSR nature initially will not be negligible and the countries undertaking the

same shouldn’t be placed at a disadvantaged position. Hence, it will require united efforts

at the national as well as the international level in order to make this a reality. However, a

pre- supposition in order to have the regime is for this consortium of nations to realize the

moral or social duty. Looking from a pragmatic point of view, the solution seems to be

only in the form of private initiatives.27

The basic principles which govern CSR can be as follows:28

• CSR is behavior by businesses over and above legal requirements, voluntarily

adopted because businesses deem it to be in their long-term interest;

• CSR is intrinsically linked to the concept of sustainable development;

businesses need to integrate the economic, social, and environmental impact

in their operations; and,

• CSR is not an optional ‘add-on’ to business core activities- but about the way

in which businesses are managed.

26
Id, p 207.
27
Id, p 208.
28
Alan C Neal, “Corporate Social Responsibility: Governance Gain or Laissez-Faire”, 29 Comp.Lab.L &
Pol’y J. 459.
 230

Though CSR depends on the corporation’s volition, it cannot choose to ignore the

negative impact that it casts on the society completely in terms of its success rate in the

future. A company that ignores social and environmental concerns in its activities may

have substantial profit or returns in its current state and therefore, be content to continue

its operations at the status quo, but its actions nonetheless have the potential to negatively

affect society and the environment. Its potential future profit is thereby diminished when

the company does not take a holistic approach to the global business environment.29

6.4 Global emerging trends

The trends discussed here are those which started emerging from the

commencement of the 21st century. Before 2000, there was a plethora of initiatives that

were taken up at international level like the Caux Principles for Business (1994), Global

Reporting Initiatives (1999), Global Sullivan Principles (1999) etc, which shows the

presence of consciousness with regards to CSR in the global context.

OECD guidelines for multinational enterprises

OECD stands for Organization for Economic Cooperation and Development. The

guidelines which were revised in 2000 are recommendations covering nine areas of

business conduct addressed by governments to multinational enterprises. Observance of

the recommendations by enterprises is purely voluntary, adhering governments sign a

binding decision to participate in Guidelines implementation and to promote their

observance by enterprises operating in or from their territory.30 The guidelines cover

business ethics on various issues including the following:

• Employment

29
Id, p 452.
30
Oecd:org/document/3/html
 231

• Human rights

• Environment

• Information disclosure

• Combating bribery

• Consumer interests

• Science and technology

• Competition

• Taxation.

6.4.1 CSR in the OECD Countries

1. European Union: There have been various proclamations, often with defeatism but

occasionally with triumphalism, that “the stakeholder ideal is in gradual retreat” in its

European “stronghold”31. Europe retains a strong and even growing commitment to

CSR principles including to the stakeholder engagement principle, although the

ambivalence expressed in the 2001 Green Paper occasionally rears its head.32 The

Green Paper was conceived with a view to strengthen the enforcement of CSR in EU.

The European Union’s commitment to CSR is globally significant. As the largest

market in the world, with correspondingly greater powers to dictate rules, the source

of most of the world’s foreign investment, and a community built explicitly on a

blend of market and social values, the European Union’s standards, requirements, and

expectations influence companies and suppliers from every region. That can be

affirmed even before considering the European Union’s role as the largest source of

31
Cf. John Micklethwait & Adrian Wooldridge,” The Company: A Short History of a Revolutionary Idea”
131 (2003).
32
Id, p 187.
 232

development assistance globally, including significant aid and technical assistance

specifically aimed at promoting CSR and sustainable development. At least with

regard to CSR, the European Union has more influence and “soft power” than the

United States. Corporation’s accountability is enhanced in the light of the detour

taken by the Green Paper’s 2001emphasis on voluntary aspects of CSR. Substantial

pressure is being exerted both within the official European bodies and by the

European Parliament, and by civil society organizations, such as the European

Coalition for Corporate Justice, to enhance the ability now existing in theory under

the Brussels Convention to hold European companies accountable for harms caused

abroad.33 Some existing legal rules and practices, such as the “loser pays” rule in

lawsuits and the fact that contingency fees are disfavored outside of the United

Kingdom, serve to temper litigation in Europe.

2. Canada, the United Kingdom, and Australia: The common law jurisdictions of the

United Kingdom, Canada and Australia are very much “three peas in a pod,” when it

comes to the future of CSR from a legal perspective. All three jurisdictions share

closely linked common law heritages with regard to corporate law, though they are

not as strong as they used to be and are likely to continue well into the future,

particularly in the area of progressive corporate law reform. Canada may have a touch

of continental European influence as evidenced by the significance of family-held

companies and even by the special prominence of its oppression remedy34.

Proponents of progressive corporate law reform in the United Kingdom, Canada, and

33
“ Corporate social responsibility: A Business contribution to sustainable development”, COM (2002),
Available at http:// trade.ec.europa.eu/ doclib/docs/2006.
34
The Occupational Pension Schemes, 1999, S.I. 1999/1849, 2(4) (U.K).
 233

Australia, particularly the NGOs, are also following parallel agendas that are likely to

align the legislative response to CSR in the three jurisdictions.35

3. France: The French stakeholder view of the corporation, its expansive laws on

workers’ rights, its provision for employee representation on corporate boards, its

significant amount of socially responsible investors which continues to grow, and its

mandatory CSR disclosure under the 2001 Loi relative aux nouvelles regulations

economiques,36 make France more amenable to CSR principles than most.37 The

current French challenge turns on implementing and extending the CSR principles

and improving corporate accountability. Currently, French companies are sharing best

practices through peer-to-peer learning networks including Enterprises pour les Droits

de I’Homme (EDH), the French initiative related to the Business Leaders Initiative on

Human Rights. Both France and its TNCs also have significant influence in

francophone Africa, reinforcing CSR principles in those emerging markets. In France

and other civil law jurisdictions, criminal procedure is available to private citizens to

bring actions before an investigating magistrate.38

4. United States: In U.S executives favored “leadership and vision, knowledge and

quality” over the triple-bottom line attention to environmental, financial, and social

credibility given higher significance by their European counterparts.39 Accordingly,

in Europe, “CSR has focused on the environmental and social impact of companies’

business functions,” whereas in the United States, CSR was seen as mainly

35
CORE, http://www.corporate-responsibility.org.
36
Joe W.(Chip) Pitts III. “Corporate Social Responsibility: Current status and Future Evolution”. Rutgers
Journal of Law& Public Policy. Spring 2009, p 15.
37
Id, p 16.
38
Id p 17.
39
“The Measure of Things: Surveys on Corporate Citizenship”, 11 J. CORP. Citizenship 18 (2003).
 234

“donations to social and artistic causes and other such acts of corporate

philanthropy.40 As regards codes of conduct, the United States shows considerable

leadership. But as for legal developments under the CSR principles, it has lagged

behind the European Union and its member states, due to more individualistic form of

liberal capitalism practiced in the United States.41 However the notion of CSR is

spreading widely and endorsed to one degree or another by the major U.S companies

and a surprising number of small to medium sized firms, it is understood in very

different ways, with the lowest common denominator being simple philanthropy. U.S

businesses as a whole still have a long way to go to truly understand and effectively

apply CSR principles.

5. Japan: The Japanese word for “business” is made up of the elements “kei” means

“governing the world in harmony while bringing about the well-being of the people”,

and “ci” means “making ceaseless efforts to achieve”.42 With its traditions of

interrelated corporate “keiretsu” and state supported capitalism, Japan has

traditionally favored civil law, relationship based stakeholder view as opposed to the

more classic common law, bargained for exchange, shareholder view. The classic

Japanese preference for the stakeholder view, opposed to the view that the

corporation exists primarily for shareholder profit, has been confirmed empirically.

Thus experts advise that when implementing CSR in countries such as Japan,

“explanations of motivations should be couched in terms of doing the right thing for

its own sake, as opposed to explaining that CSR and CSR reporting ultimately

40
Supra note 36, p 17.
41
Ibid, p 18.
42
Yoshiro Miwa, “Corporate Social Responsibility: Dangerous and Harmful, Though Maybe not
Irrelevant”, 84 Cornell L Rev.(1999). 1227
 235

benefits the firm and its owners43. The Japanese judges have greater willingness to

entertain forced labor, comfort woman, or other war crime victim compensation

claims against Japanese companies from citizens of China, Korea, or other countries.

Generally, Japan remains much less litigious and a much less favorable venue for

foreign plaintiffs, although a director could be sued for breach of fiduciary duty for an

incident abroad that damaged the Japanese company44.

6. South Korea: The culture of South Korea, like that of China and Japan, is

influenced by Confucian values. South Korean business holds stakeholder values

similar to those in Japan45. Such cultural values also make a difference. But there

have been serious gaps in practice in Korean business’ understanding of CSR

principles. Like other Asian countries; Korea has in recent years upgraded its

corporate governance laws and practices. Korean businesses have even started taking

the human rights prong of CSR quite seriously, with several major seminars involving

the top Korean business associations and companies.46

Companies in India also show increasing enthusiasm for CSR. Precedents such as

the long standing mandatory environmental reporting and the support for the

precautionary principle by the Supreme Court of India undoubtedly prepare the ground.

Indian concept of CSR is associated mainly with corporate philanthropy and voluntary

community investment, including such activities as digging wells, planting trees, health

clinics in partnership with the government, and training youth. Many large businesses in

India dedicate about a half-percent of profits to charity and consider it to meet their CSR

43
Id, p 1250.
44
Koji Ishikawa, “The Rise of the Code of Conduct in Japan: Legal Analysis and Prospect”, 27 LOY.
L.A.INT’L & COMP. L. REV.101, 113-23.(2005).
45
Id, p 113.
46
Lawrence M.Friedman, “Law and Society: An Introduction” (Prentice Hall, 1977), p 6-9
 236

commitment.47 Some industries, such as the publicly owned steel companies, reportedly

earmark 2% to CSR, focusing in areas such as “environment, family welfare, education,

health, cultural development as well as building social infrastructure, water supply and

sanitation activities”. The “CSR as charity” approach is changing as Indian businesses

include new world-class competitors. The increasing share of global manufacturing being

taken up by Indian suppliers also drives CSR in India, as they cooperate with the Indian

Government, home country governments, such as the U.S State Department and major

TNCs to receive training on codes of conduct and more sophisticated understandings of

the human rights and environmental requirements. The top Indian government officials

now support CSR as a “basic competitive requirement” for successful participation in the

global economy, and Indian chambers of commerce and industry associations show

similar enthusiasm.

6.5 Recognition of Corporate Social Responsibility in recent legislations

In 2005 China revamped its Legislation on Company Law of 1994 which came

into effect in January 2006 in order to take CSR into its sweeps. Hence, CSR is part of

the legal regime of the country. Article 5 of the Company Law 2006 states that “ a

company shall comply with the laws and administrative regulations, social morality and

business morality. It shall act in good faith, accept the supervision of the government and

the general public, and bear social responsibilities”.48 Social responsibility was added

into the text of the legislation and in addition to preserving the labor protections of the

47
P.V.Indiresan, ‘Eco-Rating’ as a Social Leveller, HINDU BUS. LINE, June, 2008.
48
Company Law of People’s Republic of China. P.R.C.Laws: chinadaily.com.cn/bizchina/2006-
04/17/content-569258.htm.
 237

1994 Company Law, the 2006 Company Law strengthens them by obligating companies

to enter into formal labor contracts with their employees49.

6.6 Socially responsible investing

Socially responsible investing involves investing funds based on ethical,

environmental or social conditions.50 It is also known as ethical investing which aims at

achieving maximum financial benefit and social good. Although accounting for a small

percentage of all funds invested worldwide, SRI has seen significant growth in recent

years, especially in Europe and the United Kingdom51. In this type of investing some

funds use negative criteria, excluding industries such as tobacco and alcohol, while others

seek out investment in companies that act proactively to address social or environmental

issues. In India, the concept of CSR may be new in theory, but in practice it is carried on

to quite an extent. The reasons why CSR is taken up are,

• Philanthropy: acts of philanthropy may be performed, without expecting

anything in return,

• Internal reasons,

• To improve relations with customer or potential business associates,

• Enlightened self interest about CSR.52

During the initial stages of industrialization, out of philanthropic more than

religious reasons, various trusts and institutions were set up for common good of the

people like universities, orphanage, old age homes, hospitals etc. The more enlightened

49
Id, as cited from Li-Wen Lin, Corporate Social Accountability Standards in the Global Supply Chain: 15
Cardozo J. Int’l &Comp.L.321.
50
Adrian Henriques, Ten Things You Always Wanted to know about CSR, Part 2; what is the difference
between CSR and Sustainability? ETHICAL.CORP.ONLINE.
51
Michele Sutton, Between A Rock and A judicial hard place; Corporate Social Responsibility Reporting
And Potential Legal Liability Under Kasky V Nike, 72 UMKC L. Rev.1159.
52
Atul Sood and Bimal Arora, The Political Economy of Corporate Responsibility in India, p.3.
 238

Gujarati and Parsi business communities of Bombay, led by Jamsedji Jejeebhoy,

Jamshedji Tata, Sir Dinshaw Petit and Premchand Roychand, spearheaded the new

Westernized trends of philanthropy53. It is known about Jamshedji Tata that he

experienced with labor welfare as well as and his son, Ratan Tata espoused the need of

alleviation of poverty. Around 66 per cent of Tata Sons, the holding group of the Tata

Group is owned by a trust. The Tata Iron and Steel Company Limited (TISCO) and ITC

were the first organizations in India to utilize the concept of the social audit to measure

their social performance in the late 1970s. This was followed by Industrialists like

G.D.Birla, Jamnalal Bajaj, Lala Shri Ram and Ambala Sarabhai, all believed to be

influenced by Mahatma Gandhi and his theory of the ‘trusteeship’ of wealth. This period

was succeeded by a hiatus of two decades between 1960-1980 where the businesses were

constrained in times of political as well as economic hardships endured by the business

class. This was also the period during which the social problems heightened. Social

unrest was rife across the country, exemplified in the unprecedented labor unrest in West

Bengal and the Naxalite movement of the 1970s54. From 1980 onwards, Indian

Corporations were no longer bubble-wrapped for safekeeping. The concept of healthy

competition not only at the domestic but on the international level was getting ingrained

into the fabric of corporate life. From here a marked difference in the approach to social

good was seen. The shift from philanthropy to responsibility towards the society could be

discerned. The concept of Corporate Citizenship was emerged.55 This shift earmarks the

pinning of responsibility onto the corporations to what it owes to the society in return for

the damage caused as opposed to a self imposed philanthropic duty based on selflessness.

53
Id, p.22.
54
Id, p.25.
55
Id, p. 25
 239

6.7 Features of new perspective of CSR

i) Goodwill: In an era of cut throat competition and availability of multiple

choices to the consumers by way of substitutes either in goods or services,

the goodwill or the reputation was now becoming more and more of an

investment rather than an incidental appendage. This investment took place

by discharging one’s function of CSR.

ii) Accountability to stakeholders: The need of accountability only to

shareholders by arriving at maximum profits was slowly being shared by

accountability to stakeholders including employees, consumers and other

interested parties. This accountability was a new reason to adopt CSR

practices.

iii) Sustainable Development: The budding entrepreneurs engaged their foresight

in order to determine their tomorrows in terms of today. The translation of

such foresight into the present was by way of adopting CSR practices. These

principles can be summed up as the triple-bottom line: People, Planet and

Profit.56

The business groups such as Reliance Industries, Escorts, Gujarat Ambuja,

Ranbaxy, Hindustan Lever Limited (HLL), ITC Limited, and Larsen and Tubro (L&T)

Limited etc realized the growing importance of CSR and took such responsibility on

them. The government has tried to extend the policy of job reservation for SC/STs in the

private sector also. However, this has been made a voluntary measure that a corporation

can take up and the industries in general have been showing its commitment to

affirmative action. Influential industrial associations like the Confederation of Indian

56
John Samuel and Anil Saari, Corporate Social Responsibility: Background & Perspective, p.2.
 240

Industries (CII) and the FICCI have in recent years tried to keep in step with the global

trend of corporate houses playing a socially responsible role. Both organizations have

adopted a range of codes on corporate social responsibility, willing to be pro-active on

issues such as environmental damage, poverty reduction, and women’s empowerment

and so on57. CII Center of Excellence for Responsive Corporate Citizenship was set up by

CII to impart and assist knowledge on institutionalization of CSR into a corporation’s

internal policies. CII is also a signatory of the UN Global Compact which encourages the

businesses to adhere to its principles with respect to CSR.

The Indian Industries were becoming more and more aware of their responsibility

towards the society and were performing it. The survey done by the Centre for Social

Market58 explored perceptions of and attitude toward corporate social and environmental

responsibility of Indian businesses.

Corporate policy Percentage of companies with policy

Corporate Governance 59
Environment 53
Occupational Health Safety 53
Education 47
Social welfare 41
Anti-discrimination 35
Community development 29
Workers Rights: child labor 29
Human Rights 12

57
Corporate Social Responsibility, cited from financial express.com/news/ Corporate Social
Responsibility/43839.
58
Ibid.
 241

This data shows that there is no prolific activity with regard to CSR but it shows

a promise in the form of growing awareness. Also, the varied heads under which positive

action is taken shows the diversity in the nature of this responsibility undertaken by the

corporations.

A survey was carried out by TNS India and the Times Foundation with the aim of

providing an understanding of the role of corporations in CSR in 200859. The findings

revealed that over 90 per cent of all major Indian organizations surveyed were involved

in CSR initiatives. But the private sector was more involved in CSR activities than the

public and government sectors60.

6.8 List of some of the Indian Industries who practice CSR

• Airtel has tied up with Indian Farmers Fertilizer Cooperative Limited (IFFCO) to

reach farmers directly. Farmers will receive free voice messages twice daily on

farming techniques, weather forecasts, dairy farming, rural health initiatives,

fertilizer availability, loan information and market rates. The farmers can also call

a dedicated helpline, managed by experts from various fields, to get answers to

their queries.

• Aptech a leading education player with a global presence that has played a broad

and continued role in encouraging and nurturing education throughout the country

since its inception. As a global player with complete solutions-providing

capabilities, Aptech has a long history of participating in community activities. It

has provided computers at schools, education to the deprived, and training and

awareness camps in association with leading NGOs.

59
Everybody’s Business: Times of India.indiatimes.com/Delhi.
60
Dr. V.V.S.K. Prasad, CSR initiatives of Indian Companies- A Study, p.2
 242

• Arcelor Mittal will spend about US$ 500 million as part of its CSR initiatives in

Jharkhand and Orissa.

• Bajaj Auto, Ashok Leyland, Tata Motors, Mahindra & Mahindra and Eicher

Motors have come together to develop hydrogen-blended compressed natural gas

(HCNG)- run vehicles to tackle the problem of rising pollution.

• BHEL has joined hands with a UN body ‘Global Compact’.

• Coca-cola India undertaken US$25-30 million a year project on water

conservation, and the project ‘Elixir of life’ to provide drinking water to nearly

30,000 school children.

• HDFC started a ‘village adoption’ scheme to improve the investment climate in

Indian villages.

• Hindustan Petroleum has started community kitchen programmes in some Indian

villages.

• ICICI Bank launched an ambitious rural banking and agribusiness initiative.

• Infosys is aggressively involved in a variety of community growth programmes.

In 1996, the company created the Infosys Foundation as a not-for –profit trust to

which it contributes up to 1% of profits after tax every year. Moreover the

Education and Research Department at Infosys also works with employee

volunteers on community development projects.

• ITC’s e-Chapual has been a great developmental initiative which has added value

to its own agricultural products.

• Jubilant Organosys Ltd, a Pharmaceuticals Company runs an anti-tuberculosis

programme with the government of Uttar Pradesh.

 243

• At Mahindra & Mahindra, The K.C.Mahindra Education Trust was established in

1953 with the purpose of promoting education. Its vision is to renovate the lives

of people in India through education and financial assistance across age groups

and across income strata. This Trust undertakes a number of education plans,

which make a difference to the lives of worthy students. The Trust has provided

more than Rs 7.5 crore in the form of grants, scholarships and loans. It promotes

education by way of scholarships. The Nanhi Kali project (for children) has over

3,300 children under it and the company aims to increase the number to 10,000 in

the next two years by reaching out to the underprivileged children in the rural

areas.

• The agricultural business link of Mahindra & Mahindra, Mahindra Shubhlabh,

aims to use cultured seeds to improve contract-farming productivity.

• Pepsico India signed the CII-Code for Ecologically Sustainable Business Growth.

It has committed to decrease the consumption of natural resources and promote

ecologically sustainable growth.

• Reliance Communications has introduced low tariff initiative for rural

subscribers.

• Reliance Power (R-Power) has made an investment of over US$12.63 billion for

renewable and alternative energy resources such as hydroelectric, wind, solar and

fuel cell based power.

• Sustainable Technologies and Environmental Projects Ltd (STEPS ) started a

project to change plastic, organic and electronic waste into petroleum without the

usual harmful residue.

 244

• Tata Group in India has a range of CSR projects, most of which are community

improvement programmes. It is a leading provider of maternal and child health

services, family planning and has provided 98% immunization in Jamshedpur.

The company also endorses sports as a way of life. It has established a football

academy, archery academy and promotes sports among employees. It offers

healthcare services all over the country with programs like rural health

development. Tata Group also has an organized relief program in case of natural

disasters, including long-term treatment and rebuilding efforts. It did laudable

work during the Gujarat earthquakes and Orissa floods. It also supports education,

with over 500 schools and also is a benefactor of the arts and culture. It has done

abundant work in improving the environment and local populations around its

industries.

• The Byraju Foundation’s Gram IT programme has generated a rural BPO model.

It is to employ rural people in the IT-enabled services.

• The heating, ventilation, air-conditioning and refrigeration (HVAC) industry is

working to get rid of its ‘global warmer’ stigma through greater use of gases with

zero ozone depletion potential.61

Corporate Social Responsibility is a duty of every corporate body to protect the

interest of the society at large. Even though the main motive of business is to earn profit,

corporate should take initiative for welfare of the society and should perform its activities

within the framework of environmental norms. Previously it was voluntary for all the

corporates to take steps for betterment of the society except government rules and

61
Mansie Shah. Emerging trends in Corporate Social Responsibility. Company Law Journal, 2009, p 171-
172.
 245

regulation related to protection of environment. .62 But, now with an important

legislative step CSR has gained significant place in New Companies Act, 2013.

6.9 CSR under Companies Act, 2013

New Companies Act, 2013 includes following criteria for Corporate Social

Responsibility.63

• Net worth – Rs. 500 Crores or more or

• Turnover – Rs. 1000 Crores or more or

• Net Profit – Rs. 5 Crores or more.

If any company during any of the financial year fulfills, any of above conditions,

Then it should –

• Constitute a CSR committee of Board which shall consist of minimum

Three directors, out of which one shall be independent director.

• The committee shall formulate and recommend CSR Policy which indicates

company’s activity as specified in Schedule VII and also amount recommend

for the same.

• At least 2% of the average net profit of the immediately preceding three

Financial years of the company shall be used for spending in accordance

with the CSR Policy.

• According to the approach “Comply or Explain”, Board should explain the

reason for not spending such amount if it fails to do so.

62
Indian Corporate Law; CSR in India; Some Theory and Practice, http:// indiacorplaw. blogspot.
in/2009/04.
63
Lord Holme and Richard Watts. Corporate Social Responsibility, Mandating Companies to Contribute,
p 2.
 246

• The company shall give preference to its local area from where it operates, for

CSR activities.64

Corporate Social Responsibility is not a new concept in India, however, the

Ministry of Corporate Affairs, Government of India has recently notified the Section 135

of the Companies Act, 2013 along with Companies (Corporate Social Responsibility

Policy) Rules, 2014 "hereinafter CSR Rules" and other notifications related thereto which

makes it mandatory (with effect from 1st April, 2014) for certain companies who fulfill

the criteria as mentioned under Sub Section 1 of Section 135 to comply with the

provisions relevant to Corporate Social Responsibility.65 The term "Corporate Social

Responsibility (CSR)" can be referred 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 companies efforts that go beyond what may be required by

regulators or environmental protection groups.66 Corporate social responsibility may also

be referred to as "corporate citizenship" and can involve incurring short-term costs that

do not provide an immediate financial benefit to the company, but instead promote

positive social and environmental change.67

Recently notified Companies (Corporate Social Responsibility Policy) Rules,

2014 have defined the term "Corporate Social Responsibility (CSR)" as follows:

"Corporate Social Responsibility (CSR)" means and includes but is not limited to: i.

Projects or programs relating to activities specified in Schedule VII to to the Act; orii.

64
Id, p. 4-6.
65
Corporate Social Responsibility Law Bulletin, http://www.fasken.com/en/india-releases-csr-policy-rules-
companies-cat/
66
Megha Kapoor. “India: Corporate Social Responsibility: Mandating Companies to contribute towards
society”. April 2014, p 1.
67
http://www.cuts-international.org/pdf/Draft-CSR_ Rules_2013.pdf
 247

Projects or programs relating to activities undertaken by the board of directors of a

company (Board) in pursuance of recommendations of the CSR Committee of the Board

as per declared CSR Policy of the company subject to the condition that such policy will

cover subjects enumerated in Schedule VII of the Act. Meaning thereby, conducting all

those activities which are either specified under Schedule VII to the Companies Act,

2013 or those which are recommended by the CSR Committee of the Board as per the

CSR Policy and are undertaken by the Board of directors of the Company will be covered

under the scope of activities of Corporate Social Responsibility.68

6.9.1 Activities Covered Under Schedule VII of the Companies Act 2013

Ministry of Corporate Affairs vide its Notification dated 27th February, 2014

(which shall come into force with effect from 1st April, 2014) has come up with the

modified Schedule VII which covers wide range of activities which can be undertaken by

the Companies as a part of their CSR initiatives.69

The activities involve the following:

• Eradicating hunger, poverty and malnutrition, promoting preventive health

care and sanitation and making available safe drinking water;

• Promoting education, including special education and employment enhancing

vocation skills especially among children, women, elderly, and the differently

abled and livelihood enhancement projects;

• Promoting gender equality, empowering women, setting up homes and hostels

for women and orphans; setting up old age homes, day care centers and such

68
http://www.investopedia.com/terms/c/corp-socialresponsibility. Asp
69
Supra note 66, p.2-3.
 248

other facilities for senior citizens and measures for reducing inequalities faced

by socially and economically backward groups;

• Ensuring environmental sustainability, ecological balance, protection of flora

and fauna, animal welfare, agro forestry, conservation of natural resources and

maintaining quality of soil, air and water;

• Protection of national heritage, art and culture including restoration of

buildings and sites of historical importance and works of art, setting up public

libraries, promotion and development of traditional arts and handicrafts;

• Measures for the benefit of armed forces veterans, war widows and their

dependents;

• Training to promote rural sports, nationally recognized sports, Paralympics’

sports and Olympic sports;

• Contribution to the Prime Ministers' National Relief Fund or any other fund

set up by the Central Government for socio-economic development and relief

and welfare of the Scheduled Castes, the Scheduled Tribes, other backward

classes, minorities and women;

• Contributions or funds provided to technology incubators located within

academic institution which are approved by the Central Government;

• Rural development projects.70

The above mentioned activities constitute the CSR activities and the companies

which are covered under the provisions of Section 135 shall be required to carry out any

one or more of the activities as specified above along with following its CSR Policy.

70
Id, p 3.
 249

The companies on whom the provisions of the CSR shall be applicable are contained in

Sub Section 1 of Section 135 of the Companies Act, 2013. As per the said section, the

companies having Net worth of INR 500 crore or more; or Turnover of INR 1000 crore

or more; or Net Profit of INR 5 crore or more during any financial year shall be required

to constitute a Corporate Social Responsibility Committee of the Board "hereinafter CSR

Committee" with effect from 1st April, 2014. The pictorial representation below gives the

representation of Section 135 (1).71

Once a company is covered under the ambit of the CSR, it shall be required to

comply with the provisions of the CSR. The companies covered under the Sub section 1

of Section 135 shall be required to do the following activities:

1. As provided under Section 135(1) itself, the companies shall be required to

Constitute Corporate Social Responsibility Committee of the Board

"hereinafter CSR Committee". The CSR Committee shall be comprised of 3

or more directors, out of which at least one director shall be an independent

director.

2. The Board's report shall disclose the compositions of the CSR Committee.

3. All such companies shall spend, in every financial year, at least two per cent

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, proviso to the Rule provide 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

71
Section 135(1), Indian Companies Act, 2013.
 250

accordance with 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, 2013.72

The Companies Act, 2013, has introduced the idea of CSR to the forefront and

through its disclosure or explain mandate, is promoting greater transparency and

disclosure. Transparency, Accountability and Corporate Governance are the pillars of the

New Companies Act, 2013. With the view of increasing the social contribution of the

India Inc., a ‘Mandatory CSR provision’ has been inserted. Here spending as CSR has

been made mandatory. Schedule VII of the Act, which lists out the CSR activities,

suggests communities to be the focal point. On the other hand, by discussing a company’s

relationship to its stakeholders and integrating CSR into its core operations, the draft

rules suggest that CSR needs to go beyond communities and beyond the concept of

philanthropy.

Functions of the CSR committee shall be:

i) Drafting of CSR policy: Formulation and recommendation of the Corporate

Social Responsibility Policy, to the Board of Directors. This policy shall

indicate the activities to be undertaken by the company as specified in

schedule VII.73

ii) Recommend the amount of Expenditure: The Committee should also

recommend the amount of expenditure to be incurred on the activities

referred in schedule VII.74

72
Id.
73
Section 135(1), Indian Companies Act,2013: (2013)5 Comp LJ 1 (St).
74
Id.
 251

iii) Monitoring the policy: Monitor the Corporate Social Responsibility policy of

the company from time to time.75

Role of the Board of Directors for the CSR Policy

i) Approval of the CSR policy: The board has to approve the CSR Policy of the

company.76 This policy is to be approved by the Board after taking into

account the recommendations made by the CSR Committee.77

ii) Disclosure of the CSR Policy: The board of the company shall also disclose

the contents of such policy in its report and also place it on the company’s

website, in the prescribed manner.78 This requirement is in line with the

‘transparency’ requirement of the New Act.

iii) Ensuring the implementation of the CSR Policy: The Implementation of the

CSR policy is equally important as its framing. The Board is to ensure that

CSR policy so adopted should also be implemented by the company.79

6.9.2 Limitations on the scope of CSR (activities excluded from the scope of CSR)

Activities only ‘inside’ India to be considered in CSR: There are some limitations

by which certain activities would not count towards CSR. Only CSR spending within

India would be recognized under the Act. Any activities undertaken outside India will be

excluded.80 This may have some impact on Indian companies having international

operations and vice versa, where CSR activities conducted in other jurisdictions would

not be taken into account for the purpose of fulfillment of obligations under Section 135.

75
Section 135(3)(c), Companies Act,2013:(2013)5 Comp LJ 1 (St).
76
Section 135(4) (a), Companies Act, 2013: (2013)5 Comp LJ 1 (St).
77
Id.
78
Id.
79
Section 135(4) (b), Companies Act,2013: (2013) 5 Comp LJ 1 (St).
80
Rule 4 (4), Companies (Corporate Social Responsibility) Rules,2014: 2 Comp LJ 12 (St).
 252

Activities for the Benefits of Employees or their family to be excluded from the

scope of CSR: Activities which are solely for the benefit of employees or their family

members are excluded from the scope of CSR activity.81 This is a measure to ensure that

CSR obligations are more widely undertaken, but it undermines the general principle that

employees are a key stakeholder in the entire scheme of things. This should not result in a

scenario where companies carry out CSR activities that benefit other stakeholders, but

their own employees are unable to enjoy these benefits.

6.9.3 Consequences of not spending the required 2% of the average net profits

Duty on the Board to explain the failure: If the company fails to spend such

amount, the Board shall specify the reasons in its report for not spending the amount.82

Failure to spend the 2% will not entail any liability on the company: A company is not

subject to liability for failing to spend on CSR. However, a company and its officers are

subject to liability for not explaining such a failure in the annual report of the board of

directors.83 Hence the provision for CSR compliance appears to be toothless.

6.9.4 The critical analysis of Section 135 of Companies Act, 2013

In this part a critical analysis of Section 135 of Companies Act, 2013 is made.

Lacunae or loopholes in the current provision and recommendations to improve are -

Lack of legal enforceability/ penal provision: There are no penal consequences which

emanate on failure to spend. It may undermine the very purpose of a mandatory CSR

provision as the companies may just cite phony reasons to avoid spending the required

amount.

81
Rule 4 (5), Companies( Corporate Social Responsibility) Rules,2014: 2 Comp LJ 12 (St).
82
Proviso of Sec 135, Companies Act, 2013: (2013) 5 Comp LJ 1 (St).
83
Section 134(8), Companies Act,2013: (2013)5 Comp LJ 1 (St).
 253

Comply or explain: According to the provision, Companies have to comply with the

provision and spend on CSR or explain the reason for non-compliance. The problem here

is who would be the authority to whom the reasons for non-compliance shall be given,

what reasons might be satisfactory? What factors might be kept in mind while deciding

the said matter? If the company is not satisfied with the decision, would there be a scope

for further appeal? - need to be answered. There is no standard for a valid explanation on

failure to spend the money; there is currently any guidance as to what constitutes a

sufficient or statutorily valid explanation for failure to spend in the board report. In

addition, a company and its directors are liable even if they fail to report on CSR

activities that actually were conducted.

The list given under Schedule VII of Companies Act is very narrow and short-

sighted: Schedule VII of the Act enlists the activities such as those relating to eradicating

poverty and hunger, promotion of education, combating diseases, social business projects

and many more considered as CSR activities. Promotions of human rights, investment in

NGOs etc for the wellbeing of others are not included in this exhaustive list. It is not clear

what constitutes CSR, as activities specified under Schedule VII appear to be an inclusive

list rather than an exhaustive list.

Another problem lies with both the provisos of Section 135: It has been said that

preference has to be given to the area in which the company is operating. Given the fact

that most of business houses and their manufacturing factories are mostly located in fairly

developing states, this approach might impede the resources only to few local areas,

thereby depriving the other underdeveloped ones with development, where the companies

are not operating.

 254

Recommendations:

Inclusion of penal provision for non-compliance: The Act should introduce a

provision for the enforceability of Section 135. Penal consequences should be attached in

order to make this clause enforceable. The Act should specify a clear definition of CSR in

order to avoid any ambiguity. Many universally recognized principles are to be adopted,

such as the ten principles of the UN Global Compact, to broaden the meaning and ambit

of CSR. By virtue of sec. 135, now the companies have to manage their accounts so as to

include activities provided under schedule VII of the Companies Act 2013. There is a

criticism that such a provision has created unfriendliness in the minds of the companies.

The contention is that the CSR is basically based on contributions out of generosity and

this provision makes it mandatory and the system has started showing distrust in them.

Section 135 of the new Companies Act, 2013 has led to debates as to whether or not CSR

initiatives should be evolved naturally or by imposition on industry. It is natural

tendency among corporate houses to come out with lofty CSR policies when left alone as

opposed to the situation when they are compelled to do so. Thus the corporate sector

resists stronger regulatory framework in this regard. General argument is that what was

naturally voluntary should not be made mandatory and such step is nothing but the

disguised form of taxation. In total the criticism is that such a move is not developmental

one. Nevertheless the inclusion of the CSR mandate under the Companies Act, 2013 is an

attempt to supplement the government’s efforts of involving the Corporate World in the

country’s development agenda. This is an innovative and positive approach which will

surely strengthen the social standing of every company implementing CSR. The

provision in the new companies act, 2013 could be considered as analogous to the Small
 255

and Medium Enterprises (SMEs) which significantly contributes to the economic growth

as well as the welfare of the citizens. It is stated in the proviso to sec. 135 of the new

Companies act, 2013 that the company while performing its function under this

provision, shall give preference to the local area and areas around it, for spending the

amount earmarked for corporate social responsibilities activities. Hence the CSR

obligation has been imposed irrespective of the size of the company.

6.10 Role of CSR in Community Development

Community84 development is intrinsically the part of CSR initiatives. Community

is a group of people sharing a common purpose, who are interdependent for the

fulfillment of certain needs, which live in close proximity and interact on a regular basis.

The group is respectful and considerate of the individuality of other persons within the

community. In a community there is a sense of community which is defined as the

feelings of cooperation, of commitment to the group welfare, of willingness to

communicate openly, and of responsibility to and for others as well as to one’s self. Most

important, there exists community leaders who are responsible for the success of any

community event, depending on the needs of the community, and the individual’s own

feelings. Community development refers to initiatives undertaken by the community with

partnership with external organizations or corporation to empower individuals and groups

of people by providing these groups with the skills they need to effect change in their

own communities. Community developers must understand both how to work with

84
According to Cambridge Dictionary-“ the people living in one particular area or people who are
considered as a unit because of their common interests, social group, or nationality.
 256

individuals and how to affect communities’ positions within the context of larger social

institutions.85

Community development is the process of developing active and sustainable

communities based on social justice and mutual respect. It is about influencing power

structures to remove the barriers that prevent people from participating in the issues that

affect their lives. Community workers facilitate the participation of people in this process.

They enable linkages to be made between communities and with the development of

wider policies and programs. Community development expresses values of fairness,

equality, accountability, opportunity, choice, participation, mutuality, reciprocity and

continuous learning. Educating, enabling and empowering are at the core of Community

development.86

Community Development is the widely used term which is given by the United

Nations in which Community development is an organized effort of individuals in a

community conducted in such a way to help solve community problems with a minimum

help from external organizations. External organizations include government and non-

government organizations, and corporations of various types and sizes such as small and

medium enterprises (SMEs) and multinational corporations (MNCs). The implication of

UN’s definition of Community development is, therefore, emphasizing creativity and

self-reliance in the community for short and long term goals, but not to defy the CSR

roles of the various types of business firms. The definition of community development in

relation to the people, is essentially both an educational and organizational process.

Another term closely related to community development is community work, which is

85
Geraldine Nkechinyere Okeudo, “Effect of Corporate Social Responsibility on the Society”, British
Journal of Science, Vol 3(1) Jan 2012.
86
Federation of Community Development Learning (2009); Available at: http://www.fcdl.org.uk.
 257

about the active involvement of people in the issues that affect their lives and focuses on

the relation between individuals and groups and the institutions which shape their

everyday experience. It takes place in both neighborhoods and communities of interest,

whenever people come together to identify what is relevant to them and act on issues of

common concern87 . The main purpose is to work with communities experiencing

disadvantage, to enable them to collectively identify needs and rights, clarify objectives

and take action to meet these within a democratic framework which respects the needs

and right of others. Community work recognizes the need to celebrate diversity and

appreciate differences among ethnic and social groups in the community.

The role of CSR in Community development referred here is any direct and indirect

benefits received by the community as a result of social commitment of corporation to the

overall community and social system.

The common roles of CSR in Community development are 88

a) Sharing the negative consequences of industrialization: This is related to

increasing conscience-focused marketplaces necessitating more ethical

business processes.

b) Close relationship between corporations and community: Through CSR

the existence of corporation in the social system is felt beyond a perception

that corporation is a place just to get employment and producer of goods and

services. By this corporations and community would stay in peace and

87
Maimunah Ismail. Corporate Social Responsibility and its role in community development: An
International perspective.Journal of International social research.vol2/9.2009.
88
Id, p. 204.
 258

harmony. This becomes a social capital that is very essential for community

development.89

c) CSR helps to protect environment: Some of the world’s largest companies

have made a highly visible commitment to CSR, with initiatives aimed at

reducing their environmental footprint. These companies take the view that

financial and environmental performance can work together to drive

company’s growth and social reputation. This can only serve to enhance the

employment value proposition such as interest in “going green” gains

traction.90 Example: “We green the earth” slogan made by some MNCs in

Malaysia who own large golf areas within the vicinity of residential areas is

another CSR initiative to protect environment. Some non-profit organizations

have been involved in learning and advocacy of environmental protection of

CSR such as those reported by the United Nations. They are- “ friends of the

earth” which highlights the environmental impacts of some MNCs and

campaign for stronger laws on environmental responsibility, “green peace

mission” is another example which gives benefit to society and community in

preserving the community’s rights towards reaping healthy environment.

d) CSR is for human right corporate sustainability : The United Nations

have launched the “Global Compact”91 – an initiative to convince

international companies to commit themselves to universal principles in

relation to protection of human rights. Being the world’s largest voluntary

89
Towers Perrin. Corporate Social Responsibility: It’s no longer an option. Available at
http://www.towersperrin.com/tp/showdctmdoc.jsp,
90
Id,
91
United Nations Global Compact. Overview of the UN Global Compact. http://www.unglobalcompact.
org/AboutTheGC/index.html,
 259

corporate responsibility initiative, the UN Global Compact is also seen a

strategic policy for businesses that are committed to aligning their operations

and strategies within the areas of human rights, labor and environment. By

doing so, business, as a primary agent driving globalization, can help ensure

that markets, commerce, technology and finance advance in ways that benefit

economies and societies everywhere. This ever- increasing understanding is

reflected in the growth of the Global Compact, which today stands as the

largest corporate citizenship and sustainability initiative in the world-with

over 5000 corporate participants and stakeholders from over 130 countries.

e) Help to get talents: Organizations with a reputation for CSR can take

advantage of their status and strengthen their appeal as an attractive employer

by making their commitment part of their value proposition for potential

candidates. It is also found that when employees view their organization’s

commitment to socially responsible behavior more favorably, they also tend to

have more positive attitudes in other areas that correlate with better

performance. They believe their organizations recognize and reward great

customer service, act quickly to address and resolve customer concerns, and

are led by people in senior management who act in the best interest of

customers.92

f) Role in transfer of technology: Closer ties help in transfer of technology

between MNCs that give concerns on CSR and communities in the host

countries. MNC is a corporation that has its facilities and other assets in more

countries other than its home country. Such companies have offices and/or
92
Supra note 75.P 205.
 260

factories in different countries and usually have a centralized head office

where they co-ordinate global management. Through transfer of technology

coupled with CSR processes, the targeted community would gain in the

various aspects of product development and marketing, such as better price

and quality, as well as concern for people’s wellbeing.93

g) Interdependency between a corporation and community: The close link

between a corporation and community is another aspect of CSR role in

community development because in the long run it creates sustainable

development. The CSR projects give aids to local organizations and

impoverished communities. This certainly leads to sustainable community

development.94

h) A CSR program helps in data gathering for other public organization

function: The technology companies implement and corporate social

responsibility initiatives both benefit community and support business

objectives. For ex, In the United States, Intel and IBM assisted under-staffed

police departments with information gathering and processing by installing

cameras with video processing abilities in areas where there are high rates of

crimes. Intel has also conducted initiatives to educate local communities on

how they can use technology to prevent crime or at least to use it to detect

who committed the crime95.

93
Barton J.H, “.New trends in Technology Transfer: Implications for National and International Policy”,
Issue No 18. Geneva: International Centre for Trade and Sustainable Development.
CSR@Intel (2009). Does Technology have a role in Community Development? Available at
94

http://blogs.intel.com/csr.2008
95
CSR@Intel (2009). Does Technology have a role in Community Development? Available at
http://blogs.intel.com/csr.2008.
 261

i) A CSR program can be seen as an aid to alleviate poverty: These practices

represent a continuing commitment by a company to behave ethically and

contribute to economic development while improving the quality of life of its

workforce and family members, as well as the local community and society at

large. The success of corporate social responsibility is determined by both

internal and external factors. Internal factors are economic considerations,

culture of the firm including the CEO and employees, and ethical influences,

while external factors are compliance with legal requirements and

technological influences as well as national culture.96 Skills possessed by CSR

managers are among the internal factors determining the success of CSR

practices especially in helping community development. Because CSR

profession is so new, transferable skills and knowledge from other related

specialization such as environmental management, business ethics,

community development, and human resource development are valuable.

Further the 2013 Act itself directly covers many Community Development

issues in the list of activities that can be undertaken by companies. For

example rural development projects, rural sports etc., are some of the

categories.

6.11 Conclusion

Corporate Social Responsibility (CSR) is about how companies manage the

business processes to produce an overall positive impact on society. Thus companies

consider the interests of society by taking responsibility for the impact of their activities

Davis, K. “Can business afford to ignore Corporate Social Responsibility?” California Management
96

Review, 2, p 70-72.
 262

on customers, suppliers, employees shareholders, communities and other stakeholders, as

well as the environment. This is seen to extend beyond the statutory obligation to comply

with legislation as organizations are voluntarily taking further steps to improve the

quality of life for employees and their families as well as for the local community and

society at large. If a company chooses to follow the way of CSR, it will integrate ethical

concerns in its activities and in its interaction with all the stakeholders. This implies that

the corporate units function in such a way that their CSR activities in all likelihood

actually reach out to the beneficiaries –the society in general. The ethical considerations

are aimed at preparing the groundwork for expecting the correct reaction or response of

their CSR generated activities. Changing winds of time are propelling the companies into

action by accepting responsibility and performing them. Indian corporate scenario

performs this duty not in the end of philanthropic good but it performs its role as a

responsible corporate citizen. Considering the increasing vast and complex business

environment, the move of the Ministry of Corporate Affairs is a welcoming step which

apart from contributing towards society, plays a major role in various ways which

includes attracting and retaining employees in a such a way as to increase morale of the

employees along with creating a sense of belonging to the company and contributes

towards enhancement of company’s own goodwill, positive image along with bringing

competitive advantages.